UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 1, 1998
Piercing Pagoda, Inc.
(Exact Name of Registrant as Specified in Charter)
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Delaware 0-24850 23-1894725
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction Identification No.)
of Incorporation)
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3910 Adler Place, Bethlehem, PA 18017
(Address of Principal Executive Offices) (Zip Code)
(610) 691-0437
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events.
On September 1, 1998, the Registrant completed the acquisition
of its sole licensee, Piercing Pagoda of Florida, Inc. In connection with
the acquisition, the Registrant issued the press release attached hereto as
Exhibit 1.
Item 7. Financial Statements.
(a) Inapplicable
(b) Inapplicable
(c) Exhibits
Exhibit No. Item
1 Press Release issued by Piercing Pagoda, Inc.
on September 2, 1998.
2 Stock Purchase Agreement by and between
Piercing Pagoda, Inc. and Richard P. Russ,
dated as of August 31, 1998.*
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PIERCING PAGODA, INC.
Date: September 11, 1998
By:
John F. Eureyecko
President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PIERCING PAGODA, INC.
Date: September 11, 1998 By:/s/ John F.Eureyecko
--------------------
John F. Eureyecko
President
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Current Report
on Form 8-K:
Exhibit No. Item
1 Press Release issued by Piercing Pagoda, Inc. on
September 2, 1998.
2 Stock Purchase Agreement by and between Piercing
Pagoda, Inc. and Richard P. Russ, dated as of
August 31, 1998.*
EXHIBIT 1
Piercing Pagoda Completes Purchase of Florida Licensee
September 2, 1998 08:32 a.m.
BETHLEHEM, Pa. -- (BUSINESS WIRE) -- September 2, 1998 -- Piercing Pagoda,
Inc. PGDA announced Wednesday that is has purchased the operations of its
sole licensee, Piercing Pagoda of Florida Inc., which operates 22 stores in
the State of Florida. In connection with the acquisition, which was
structured as a cash for stock purchase, the license agreement between
Piercing Pagoda Inc. and Piercing Pagoda of Florida Inc. was terminated. The
license agreement granted exclusive rights to Piercing Pagoda of Florida
Inc. to operate in the State of Florida. The purchase price totaled $11.0
million dollars. The president of Piercing Pagoda of Florida Inc., Richard
P. Russ, will join Piercing Pagoda Inc. as a corporate vice president. John
F. Eureyecko, President and Chief Operating Officer, commented, "This
acquisition represents a significant step in securing our position within
one of our most important states. This purchase will add 22 high volume
locations and a management team with over 25 years of experience. Richard
Russ has worked with the Company since its inception and we look forward to
benefiting from his many years of experience." Eureyecko added, "The State
of Florida presents the Company with many significant opportunities for
expansion. We anticipate that this acquisition will not be dilutive to
earnings in the current year and should have a positive impact on earnings
in our next fiscal year and beyond, as the Company will now be able to
freely expand in the sate." Piercing Pagoda Inc. is the largest specialty
retailer of gold jewelry through kiosk stores in the United States,
currently operating over 900 stores in 47 states and Puerto Rico. The
Company primarily operates under the names Piercing Pagoda, Plumb Gold, and
Slver & Gold Connection. The Company offers an extensive selection of
popular priced 14 karat and 10 karat gold chains, bracelets, earrings,
charms and rings, as well as a selection of silver jewelry, all in basic
styles at everyday low prices.
Certain statements included herein are forwarded looking statements within
the meaning of the Private Litigation Reform Act of 1995, including, but not
limited to, statements relating to anticipated results of operations. A
variety of factors could cause the Company's actual results to differ
materially. The risks and uncertainties include, but are not limited to, the
ability to obtain favorable store locations on satisfactory lease terms, the
Company's ability to finance expansion plans and other factors described in
the Company's Quarterly Report on the Form 10-Q for the quarter ended June
30, 1998.
EXHIBIT 2
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
PIERCING PAGODA, INC.
AND
RICHARD P. RUSS
<PAGE>
TABLE OF CONTENTS
Page
1. Acquisition of Stock; Purchase Price; Adjustments................1
1.1 Acquisition of Stock.......................................1
1.2 Purchase Price.............................................1
1.3 Adjustments................................................2
2. Representations, Warranties and Agreements of Shareholder with
Respect to Company..............................................4
2.1 Corporate Status; Outstanding Stock........................4
2.2 Officers, Directors, Bank Accounts, etc....................5
2.3 Subsidiaries and Joint Ventures............................5
2.4 Financial Statements.......................................5
2.5 Liabilities; Accounts Receivable...........................5
2.6 Real Estate................................................6
2.7 Personal Property..........................................7
2.8 Insurance..................................................8
2.9 Contracts, Leases, Agreements and Other Commitments........8
2.10 Labor, Employment Contracts and Employee Benefit Plans.....9
2.11 Litigation................................................10
2.12 Conflicting Interests.....................................10
2.13 Compliance with Law and Regulations.......................11
2.14 Agreement Not in Breach of Other Instruments Affecting
Company; Governmental Consent............................11
2.15 Tax Matters...............................................11
2.16 Actions Since January 1, 1998.............................15
2.17 [Intentionally Blank].....................................15
2.18 Employee Benefit Plans and ERISA..........................15
2.19 No Broker or Finder.......................................18
3. Further Representations and Warranties of Shareholder...........18
3.1 Ownership of Capital Stock of Company.....................18
3.2 Authorization; Valid and Binding Agreement................18
3.3 Agreement Not in Breach of Other Instruments Affecting
the Shareholder..........................................19
4. Representations and Warranties of Buyer.........................19
4.1 Corporate Status and Authority; Outstanding Stock.........19
4.2 Agreement Not in Breach of Other Instruments
Affecting Buyer.........................................19
4.3 No Broker or Finder.......................................19
4.4 Inventory.................................................20
4A. Covenants of Buyer..............................................20
4A.1 Leases....................................................20
4A.2 Employees.................................................20
4A.3 By-Laws...................................................20
4A.4 Consents and Actions......................................21
4A.5 Agreement with Shareholder................................21
4A.6 Party Litigation..........................................21
4A.7 Indebtedness..............................................21
4A.8 Certain Tax-Related Distributions.........................22
4A.9 Payment Deferral..........................................22
4A.10 Cash Receipts.............................................22
5. Continuation and Survival of Representations and Warranties.....22
6. Buyer's Inspection Rights.......................................23
6A. PS Plan Termination.............................................23
7. Conduct of the Business of Company Pending Closing..............26
7A. Covenant of Shareholder.........................................28
8. Conditions Precedent to Buyer's Obligation to Close.............28
9. Conditions Precedent to Shareholder's Obligation to Close.......29
10. Closing.........................................................30
10.1 Closing Date..............................................30
10.2 Deliveries by Shareholder at Closing......................30
10.3 Deliveries by Buyer at Closing............................31
11. Indemnification of Buyer........................................32
11.1 Basic Provision...........................................32
11.2 Definition of "Deficiencies.".............................32
11.3 Procedures for Establishment of Deficiencies..............33
11.4 Payment of Deficiencies...................................34
11.5 Limitation................................................34
11.6 Remedy Exclusive..........................................34
11A. Indemnification of Shareholder..................................35
11A.1 Basic Provision...........................................35
11A.2 Definition of "Shareholder Deficiencies.".................35
11A.3 Procedures for Establishment of Shareholder Deficiencies..35
11A.4 Payment of Shareholder Deficiencies.......................36
11A.5 Limitation................................................36
11A.6 Remedy Exclusive..........................................37
12. Further Assurances..............................................37
13. Tax Covenants Relating to Company and Shareholder...............37
14. Defined Terms...................................................39
15. Termination.....................................................42
16. Miscellaneous...................................................43
16.1 Indulgences, Etc..........................................43
16.2 Controlling Law...........................................44
16.3 Waiver....................................................44
16.4 Notices...................................................44
16.5 Exhibits and Schedules....................................45
16.6 Binding Nature of Agreement...............................45
16.7 Execution in Counterparts.................................45
16.8 Provisions Separable......................................45
16.9 Number of Days............................................46
16.10 Entire Agreement..........................................46
16.11 Paragraph Headings........................................46
16.12 No Third Party Beneficiaries..............................46
16.13 Publicity.................................................46
16.14 Expenses..................................................46
16.15 Interpretation............................................46
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT made as of the 31st day of August 1998,
by and between Piercing Pagoda, Inc., a Delaware corporation ("Buyer"), and
Richard P. Russ ("Shareholder").
WITNESSETH:
WHEREAS, Shareholder owns all of the issued and outstanding shares of
capital stock of Piercing Pagoda of Florida, Inc., a Florida corporation
("Company");
WHEREAS, Buyer desires to acquire all of the issued and outstanding
capital stock of Company from Shareholder on the terms and conditions
hereinafter set forth;
WHEREAS, Company is, and has been, engaged in the business of
retailing primarily gold jewelry as a licensee of Buyer for more than 20
years, primarily through kiosk stores in Florida (the "Business"); and
WHEREAS, a glossary of defined terms appears in Section 14 of this
Agreement and reference is made to that Section for the definitions of
capitalized terms used herein which are not defined elsewhere.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. .cquisition of Stock; Purchase Price; Adjustments
1.1 . On the Closing Date, Shareholder shall convey, transfer and assign,
upon the terms and conditions herein set forth, to Buyer, free and clear of
all liens, security interests, pledges, claims and encumbrances of every
kind, nature and description, and Buyer shall accept from Shareholder, all
of the outstanding capital stock of Company.
1.2 . The purchase price (the "Purchase Price") to be paid by Buyer to
Shareholder for all of the outstanding capital stock of the Company shall be
an aggregate of $11.0 million, subject to adjustment as provided in Section
1.3 below, payable as follows:
1.2.1 $10.5 million of the Purchase Price, subject to preliminary adjustment
as provided in Section 1.3 below (such amount, as so preliminarily adjusted,
is referred to as the "Closing Date Payment"), shall be payable in cash at
the Closing by wire transfer of immediately available funds to an account
designated by Shareholder.
<PAGE>
1.2.2 The remainder of the Purchase Price (the "Holdback Amount") shall be
deposited into an interest-bearing escrow account (the "Escrow") at First
Union Bank (the "Escrow Agent"). Upon the determination of the Final Net
Worth Adjustment (as defined below), if the Preliminary Net Worth Adjustment
(as defined below) is less than the Final Net Worth Adjustment, Buyer shall
receive from the Holdback Amount the amount of such deficiency (such
deficiency, if any, being hereinafter referred to as the "Net Worth
Adjustment Deficiency"). Upon the determination of the Final Net Worth
Adjustment, if the Final Net Worth Adjustment is less than the Preliminary
Net Worth Adjustment, Buyer shall promptly pay to Shareholder in cash the
amount of such deficiency. The remainder of the funds in Escrow, if any,
shall be released to Shareholder from Escrow six months from the date of
Closing, to the extent that claims have not been made against such amount by
such date pursuant to Section 11 hereof. Buyer shall have the right to
receive funds from the Escrow to the extent of any Deficiencies established
in accordance with Section 11 below. In addition, to the extent that funds
in the Escrow are insufficient to cover any such Deficiencies, subject to
the provisions of Section 11 hereof, Shareholder shall be personally liable
for such amount and, without limiting Buyer's other remedies, Buyer shall
have the right to set-off any such insufficiency against any amounts due to
Shareholder and/or GSR pursuant to the Agreement with Shareholder (as
defined below). The Escrow Agent shall maintain the Escrow in accordance
with, and shall be governed by, the terms of an escrow agreement in the form
attached hereto as Exhibit A (the "Escrow Agreement").
1.3 . The Purchase Price shall be subject to adjustment in accordance with
the following provisions:
1.3.1 The Purchase Price shall be reduced by an amount equal to the amount,
if any, by which the Closing Date Net Worth (as defined below) is less than
$300,000 and shall be increased by the amount, if any, by which the Closing
Date Net Worth is greater than $300,000. For purposes of this Agreement,
"Net Worth Adjustment" means $300,000 minus the Closing Date Net Worth. The
parties acknowledge and agree that the Net Worth Adjustment will be a
negative number if the Closing Date Net Worth exceeds $300,000. "Net Worth"
shall equal the assets of the Company minus the liabilities of the Company
(including without limitation all tax accruals), both as determined in
accordance with GAAP (except that (i) depreciation is based upon
depreciation calculated for federal income tax purposes, and not GAAP, and
(ii) inventory calculations and amounts, which are stated on the "FIFO"
method, shall be figures supplied by Buyer to Company, which shall be
estimates and subject to adjustment with respect to the Preliminary Closing
Date Net Worth and Preliminary Net Worth Adjustment and final and not
subject to adjustment (except in the case of inaccuracies to the extent
mutually agreed by Buyer and Shareholder) with respect to the Final Closing
Date Net Worth and Final Net Worth Adjustment) and in accordance with the
policies and practices utilized by the Company in preparing the Warranted
Balanced Sheet (as defined in Section 2.4 below). "Closing Date Net Worth"
shall equal Net Worth as of the close of business on the day immediately
prior to the Closing Date (provided that if the Closing takes place on or
after August 31, 1998, the Closing Date Net Worth shall equal Net Worth as
of the close of business on August 31, 1998).
<PAGE>
1.3.2 Buyer shall deliver to Shareholder as promptly as practicable after
the date hereof a reasonable good faith estimate of what Company's inventory
and accounts payable to Buyer will be as of August 31, 1998 (or such earlier
date as is used to calculate Closing Date Net Worth), and as promptly as
practicable thereafter and at least two business days prior to the Closing
Date, Shareholder shall submit to Buyer his reasonable good faith estimate
of the Closing Date Net Worth (the "Preliminary Closing Date Net Worth") and
of the Net Worth Adjustment (the "Preliminary Net Worth Adjustment"). The
Closing Date Payment shall be based on the Preliminary Net Worth Adjustment
(i.e., the Closing Date Payment will equal $10.5 million minus the
Preliminary Net Worth Adjustment, if any, so that if the Preliminary Net
Worth Adjustment is positive, the Closing Date Payment will be less than
$10.5 million and if the Preliminary Net Worth Adjustment is negative, the
Closing Date Payment will be greater than $10.5 million). The parties
acknowledge and agree that if the Preliminary Closing Date Net Worth exceeds
$300,000, Buyer shall have the right to require the Company to pay to
Shareholder at the Closing the amount of such excess; provided Buyer shall
provide the Company with, or cause the Company to obtain, the required
funds. The parties further acknowledge and agree that the Preliminary
Closing Date Net Worth is $750,000 and that the Preliminary Net Worth
Adjustment is negative $450,000; accordingly the Closing Date Payment is
$10.95 million.
<PAGE>
1.3.3 The "Final Closing Date Net Worth" and the "Final Net Worth
Adjustment" shall be determined in accordance with the following procedures.
Within 15 days after the Closing, Buyer shall deliver to Shareholder the
information relating to inventory and accounts payable, and Buyer shall
cause the Company to give Shareholder access to such other information,
necessary to calculate the Closing Date Net Worth and the Net Worth
Adjustment as of August 31, 1998 (or such earlier date as is used to
calculate Closing Date Net Worth), and within 45 days after Shareholder's
receipt of all such information, Shareholder shall deliver to Buyer
calculations of the Closing Date Net Worth and the Net Worth Adjustment,
which calculations shall be made in a manner consistent with the Company's
past practices and with the calculation of the Preliminary Closing Date Net
Worth and the Preliminary Net Worth Adjustment, and shall show the balance
sheet items and amounts used in the calculations. Such calculations shall
become the Final Closing Date Net Worth and the Final Net Worth Adjustment
unless, within 60 days after Buyer's receipt of such calculations, Buyer
notifies Shareholder in writing of Buyer's different calculations of such
amounts. In such event, Buyer's calculations shall become the Final Closing
Date Net Worth and the Final Net Worth Adjustment unless, within 15 days
after Shareholder's receipt of such calculations, Shareholder notifies Buyer
in writing of his disagreement with Buyer's calculations. The parties shall,
in good faith, attempt to resolve any such dispute. In the event the parties
are unable to resolve such dispute within 30 days after Shareholder notifies
Buyer of such disagreement, they shall (i) retain as arbitrator the Miami,
Florida office of Arthur Andersen LLP or, failing such firm's agreement to
act as arbitrator, such other independent accounting firm as may be mutually
agreed upon by the parties (provided that, (A) the individual to serve as
arbitrator shall be reasonably acceptable to both parties, and (B) if the
parties cannot agree on a firm which agrees to act in such capacity within
30 days, either party may cause an arbitrator to be appointed by the
American Arbitration Association in Miami, Florida) and (ii) request such
arbitrator to act as promptly as practicable in accordance with its own
rules to resolve all such disputed matters, provided that the parties agree
that the scope of retention of the arbitrator shall be limited to resolving
the issues presented to it within the ranges proposed by Buyer and
Shareholder. The decision of the arbitrator shall be in writing and shall be
final, non-appealable and binding on Shareholder and Buyer, and the amounts
so determined shall be the Final Closing Date Net Worth and Final Net Worth
Adjustment, and the fees and expenses, if any, of such arbitrator shall be
paid one-half by Buyer and one-half by Shareholder; provided, however, that,
if the Final Net Worth Adjustment so determined by arbitration differs by
more than $75,000 from the Final Net Worth Adjustment as determined by
either party, either party, within 30 days after such decision has been
delivered to the parties, may initiate litigation to contest the
determination of the Final Closing Date Net Worth and the Final Net Worth
Adjustment. The non-prevailing party in such litigation (i.e., the party
whose claimed Final Net Worth Adjustment is further from the Final Net Worth
Adjustment as determined by the litigation than the other party's, it being
acknowledged and agreed that for purposes of this provision, the party that
does not initiate the litigation shall have the right to elect, by written
notice to the party who initiated the litigation within 20 days after the
litigation is initiated, in his or its sole discretion, whether his or its
Final Net Worth Adjustment is that determined by the arbitrator or that
which he or it presented to the arbitrator) shall pay the fees (including
reasonable attorneys' fees) and expenses of the prevailing party.
1.3.4 In order to facilitate the adjustment procedures described above, the
parties shall mutually arrange for a physical inventory to be taken on the
close of business on August 31, 1998.
2. Representations, Warranties and Agreements of Shareholder with Respect to
Com. As material inducement to Buyer to enter into this Agreement and to
close hereunder, Shareholder hereby makes the following representations,
warranties and agreements to and with Buyer:
<PAGE>
2.1 . Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida, has the power and authority
to own its properties and to carry on its business as it is now being
conducted, and is not required to be qualified to do business as a foreign
corporation in any jurisdiction. Company has an authorized capital
consisting of 1,000,000 shares of Common Stock, $0.01 par value per share,
of which 250 shares are outstanding, all of which outstanding shares are
validly issued, fully paid and non-assessable, and 500 shares are held in
the Company's treasury. There are no options, warrants, rights, shareholder
agreements or other instruments or agreements outstanding giving any person
the right to acquire any shares of capital stock of Company, nor are there
any commitments to issue or execute any such options, warrants, rights,
shareholder agreements, or other instruments or agreements. There are no
outstanding stock appreciation rights or similar rights measured with
respect to any of Company's capital stock, nor are there any instruments or
agreements giving anyone the right to acquire any such rights. True, correct
and complete copies of Company's minute books and stock records, including
Company's Articles of Incorporation and By-Laws and all amendments to both,
have been made available to Buyer. Company is not in default under or in
violation of any provision of its Articles of Incorporation or its By-Laws,
except where a violation of the Bylaws would not have a material adverse
effect on the Company, the ability of Shareholder to consummate the
transactions contemplated by this Agreement, or on the ability of Buyer to
conduct the business of the Company as it is presently conducted.
2.2 Schedule 2.2 discloses, as of the date hereof, all directors and
officers of Company, all bank accounts and safe deposit boxes of Company and
all persons authorized to sign checks drawn on such accounts and to have
access to such safe deposit boxes.
2.3 . Except as set forth on Schedule 2.3, the Company has not owned and
does not currently own any capital stock, security, partnership interest or
other interest of any kind, either direct or indirect, in any corporation,
partnership, joint venture, association or other entity.
2.4 . The balance sheets of Company as at June 30, 1996, June 30, 1997,
September 30, 1997 and June 30, 1998 (the balance sheet as at June 30, 1998
is hereafter referred to as the "Warranted Balance Sheet") and the related
statements of income (loss) for the twelve month periods ended June 30, 1996
and 1997, the three month period ended September 30 and the nine month
period ended June 30, 1998, copies of all of which constitute Schedule 2.4,
were prepared in accordance with GAAP (except that (x) as to all such
balance sheets and statements of income (i) depreciation is based upon
depreciation calculated for federal income tax purposes, and not GAAP, and
(ii) inventory calculations and amounts, which are stated on the "FIFO"
method, are based upon figures supplied by Buyer to the Company, and shall
not be adjusted or disputed by Buyer, and (y) as to all such balance sheets
and statements of income except the Warranted Balance Sheet, (i) prepaid
expenses and deferred charges were expensed as paid and not amortized and
(ii) liabilities in an amount not greater than $60,000 in any such period
were not accrued), and (except in the Warranted Balance Sheet and related
statements of income to the extent they were not prepared in accordance with
the practices described in clauses (y)(i) and (ii) above) in accordance with
practices consistently applied throughout the periods reported upon and with
past periods, and fairly present the financial position of Company as at the
dates of such balance sheets, and the results of the operations of Company
for the periods ended on such dates (subject to (i) in the case of the
foregoing financial information as at, and for the periods ended, September
30, 1997, and June 30, 1998, to normal year-end adjustments which would not
be material and (ii) the absence of footnote disclosures). Such financial
statements were compiled by Howard M. Amdur, C.P.A., P.A., certified public
accountant (whose reports are included with such financial statements,
except for the Warranted Balance Sheet). To the Knowledge of Shareholder,
Howard M. Amdur, C.P.A., P.A., will issue an unqualified report with respect
to the Warranted Balance Sheet on or prior to September 30, 1998. The Net
Worth as of the date hereof is at least $300,000.
<PAGE>
2.5 . To the Knowledge of Shareholder, the Company has no liabilities,
whether related to tax or non-tax matters, known or unknown, due or not yet
due, liquidated or unliquidated, fixed, contingent, or otherwise, including
penalty, acceleration or forfeiture clauses in any contract, except as and
to the extent disclosed in the Warranted Balance Sheet or in Schedule 2.5 or
incurred since June 30, 1998 in the ordinary course of business consistent
with past practice and which are not material to the Company. Each of the
accounts receivable of Company reflected on the Warranted Balance Sheet
constituted a valid claim in the full amount thereof against the debtor
charged therewith on the books of Company, was acquired in the ordinary
course of Company's business and will be paid in full within 90 days after
the Closing Date. To the Knowledge of Shareholder, no account debtor has any
valid set-off, deduction or defense with respect thereto and no account
debtor has asserted any such set-off, deduction or defense. There is no
reserve for doubtful accounts reflected on the Warranted Balance Sheet.
2.6 .eal Estate
2.6.1 Company has no interest in any real estate except those properties
disclosed on Schedule 2.6 which Company leases or subleases, as tenant or
subtenant (the "Leased Properties"). All Leased Properties are available to
be used without material restriction in the conduct and operation of the
Business and, to the Knowledge of Shareholder, comply in all material
respects with all applicable legal requirements. The Company has not
received from any governmental authority any written notice of any material
violation of any applicable law with respect to the use or condition of any
of the Leased Properties, including without limitation, applicable building
and zoning codes and regulations of any governmental authority having
jurisdiction. To Shareholder's actual knowledge, no owner of any Leased
Property has received such a notice.
2.6.2 (A) All leases or subleases (collectively, the "Leases") of the Leased
Properties are disclosed on Schedule 2.6, including for each the amount of
any security deposit and whether there are any non-disturbance agreements
from mortgagees or paramount lessors; (B) Shareholder has delivered to Buyer
true and complete copies of all Leases, all amendments and supplements
thereto and all such non-disturbance agreements; (C) except as disclosed on
Schedule 2.6, Company is the holder of the lessee's or sublessee's interest,
as applicable, in each Lease and Company has not assigned any Lease or any
interest therein or subleased any portion of the Leased Properties; (D) each
Lease is in full force and effect; (E) Company and, to the actual knowledge
of Shareholder, each landlord under any Lease, is not in default under any
Lease, and no event has occurred which, with the giving of notice or passage
of time or both, would constitute a default by Company or, to the actual
knowledge of Shareholder, any landlord under any Lease; (F) except as set
forth on Schedule 2.6, neither the execution nor performance of this
Agreement nor the consummation of any of the transactions contemplated
herein will result in a breach of or constitute a default under any of the
Leases or require the consent of any landlord or other person or entity; (G)
neither Company nor Shareholder has actual knowledge of any fact or
circumstance that would cause Buyer or Company, as the case may be, to be
unable to renew any Lease on (i) its current terms or (ii) if greater,
market terms; and (H) listed separately on Schedule 2.6 are all leases being
negotiated or otherwise being pursued as of the date of this Agreement.
1.1.1
<PAGE>
2.6.3 Except as disclosed on Schedule 2.6, Company: (A) has complied in all
material respects with all applicable legal requirements of any nature
concerning the protection of human health, safety or the environment,
including, without limitation, requirements concerning discharges to the
air, soil, surface water or ground water and concerning the generation,
storage, treatment, disposal or remediation of any waste (collectively,
"Environmental Law"), and for dealing with, storage, treatment and disposal
of "hazardous substances," "pollutants," "contaminants" or similarly
described materials, as those terms are defined under any Environmental Law;
(B) has never received any notice from any governmental authority or third
party alleging any liability or condition that could give rise to a
liability or an obligation to take remedial action or file reports under
Environmental Law, and Shareholder has no Knowledge of any condition that
could give rise thereto, and has never taken such action or filed such
reports; and (C) has obtained all necessary registrations, licenses, permits
and approvals required by any Environmental Law. With respect to the
ear-piercing process (including storage, handling, piercing and disposal),
the Company has employed the pre-sterilized, single-use method of Inverness
Corporation and Shareholder is not making any representation or warranty
with respect to Environmental Laws as they relate to the ear-piercing
process (including storage, handling, piercing and disposal), other than
that Company has employed such process. Notwithstanding the generality of
the representations and warranties set forth in Section 2.13 hereof, the
representations and warranties set forth in Section 2.13 shall be deemed not
to be applicable to any matter arising under any Environmental Law.
2.7 .ersonal Property
<PAGE>
2.7.1 Except as disclosed on Schedule 2.7.1, (i) Company has good and valid
title to all material personal property, tangible and intangible reflected
on the Warranted Balance Sheet or acquired by it since the date of the
Warranted Balance Sheet, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, licenses to third
parties, encumbrances and claims of every kind or character, except
Permitted Liens, (ii) Company is the owner of all the personal property now
located in or upon the premises occupied by Company and of all personal
property which it uses in the operation of its business, and (iii) all
equipment, furniture and fixtures, and other tangible personal property of
Company is in good operating condition and repair and does not require any
repairs other than normal routine maintenance to maintain such property in
good operating condition and repair. Company does not own, has no rights in,
and is not using in the conduct of its business, any Intellectual Property
(as defined below), except (A) as set forth on Schedule 2.7.1, (B)
pre-packaged, "shrink-wrapped" software, (C) software developed by or on
behalf of the Company which is used solely to access Buyer's database in the
ordinary course, and (D) software proprietary to Buyer. Company has not
assigned or otherwise transferred, directly or indirectly, that certain
Restatement and Modification of Licensing Agreements by and between Company
and Buyer, dated June 3, 1994, as amended by that certain Amendment to
Restatement and Modification of Licensing Agreements by and among Company,
Buyer and Ears, Inc., dated November 1, 1995, or any interest therein, to
any person or entity. Neither Shareholder nor any relative or Affiliate of
Shareholder (other than Company) is a party to any agreement, arrangement or
understanding with the Company or Buyer, or has any rights, relating to
Intellectual Property or otherwise. As used herein, "Intellectual Property"
shall include trademarks, trade names, logos, service marks, copyrights,
patents, pending patent applications, shoprights, know-how, trade secrets,
computer programs and computer software and the like and other items
commonly known as intellectual property.
2.7.2 The corporate name of Company and the trademarks, trade names, logos
and service marks listed on Schedule 2.7.2 (collectively "Marks") are the
only Marks which are used by Company in the operation of its business.
Within the past five years, Company has not done business under any name
other than its current corporate name or a trade name disclosed on Schedule
2.7.2.
2.8 . Company maintains the insurance policies described on Schedule 2.8.
All of such policies are in full force and effect, Company is not in default
of any provision thereof and all premiums due (without regard to any grace
period) with respect to such policies have been paid. Company has not
received notice from any issuer of any such policy of the insurer's
intention to cancel or refuse to renew any such policy issued by such
insurer. True, correct and complete copies of all binders for such policies
and of Company's lapsed policies have been delivered to Buyer.
2.9 . tracts, Leases, Agreements and Other Commitments
2.9.1 Company is not a party to or bound by any written, oral or implied
contract, agreement, lease, power of attorney in favor of a third party and
not revocable at will, guaranty, surety arrangement or other commitment,
including but not limited to any contract or agreement for the purchase or
sale of merchandise or for the rendition of services, except for agreements
with Buyer or its Affiliates, and the following (which are hereinafter
collectively called the "Company Agreements"):
2.9.1.1 Leases described on Schedule 2.6;
2.9.1.2 agreements involving a maximum possible liability or obligation per
agreement per annum on the part of Company of less than $10,000 each and
less than $100,000 in the aggregate;
2.9.1.3 employment-related agreements each of which is
disclosed on Schedule 2.10;
2.9.1.4 agreements listed on Schedule 2.9; and
2.9.1.5 other agreements that are not material to the
conduct of Company's business.
<PAGE>
2.9.2 All of the Company Agreements are in full force and effect and are
valid, binding and enforceable against the Company and, to the actual
knowledge of Shareholder, the other parties thereto, subject to the effects
of applicable bankruptcy, insolvency, reorganization, moratorium or other
federal or state laws affecting the rights of creditors and the effect of
availability of rules of law governing specific performance, injunctive
relief, contracts in violation of public policy, or other equitable remedies
(considered in a proceeding at law or in equity). Except as disclosed on
Schedule 2.9, Company and, to the Knowledge of Shareholder, all other
parties to all of the Company Agreements have performed all material
obligations required to be performed to date under the Company Agreements
and neither Company nor, to the Knowledge of Shareholder, any such other
party is in default or in arrears under the terms thereof, and no condition
exists or event has occurred which, with the giving of notice or lapse of
time or both, would constitute a default thereunder, except for such default
or breach which would not have a material adverse effect on the condition
(financial or otherwise), net worth, assets, operations or liabilities of
the Company (a "Material Adverse Effect"). Except as set forth on Schedule
2.9, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not, with or without the giving of
notice, the lapse of time, or both, result in an impairment or termination
of, or result in a material breach of any of the terms or provisions of, or
constitute a default under, or conflict with, any Company Agreement. Except
as set forth on Schedule 2.9, Shareholder is not aware of any intention by
any party to terminate or amend any Company Agreement or, if Company intends
to request a renewal, of any intention to refuse to renew the same upon
expiration of its term.
2.9.3 Except as set forth on Schedule 2.9.3, as of the date of this
Agreement, there were no outstanding written or oral proposals, bids, offers
or guaranties made by Company, which, if accepted, would or could impose any
material debts, obligations or liabilities upon Company.
2.10 .abor, Employment Contracts and Employee Benefit Plans
2.10.1 Schedule 2.10 discloses a complete and correct list of all employees
of Company, showing for each his or her status (full-time, part-time, on
leave of absence, etc.), gross rate of hourly or weekly compensation, title,
original date of hire, accrued vacation time (or compensation in lieu of
vacation), any bonus or deferred compensation arrangements, fringe benefits
and service credited for purposes of vesting and/or eligibility under any
plan, including without limitation, any profit sharing, retirement or
vacation plan or any other employment-related benefit plan or program.
Without limiting the generality of Section 2.9 hereof, except as disclosed
on Schedule 2.10, Company is not a party to any employment agreement,
consulting agreement, personal service agreement or agreement with any
independent contractor, and there are no actual or, to Shareholder's
Knowledge, threatened controversies related to or arising out of any such
existing or alleged agreements. Company is not a party to any pending or
threatened labor dispute. To the extent required, on or prior to the Closing
Date, the Company shall have performed all obligations, given all notices
and obtained all consents necessary under such agreements to consummate this
Agreement.
<PAGE>
2.10.2 The consummation of this Agreement will not constitute or result in a
material breach or default under any agreement disclosed on Schedule 2.10,
will not result in or permit the termination of any such agreement and will
not cause any special rights (including, without limitation, any severance,
"golden parachute," change of control or similar benefit) to become
available (with or without the occurrence of any future actions) to any
party to any such agreement.
2.10.3 Company is not a party to any collective bargaining agreement. With
respect to employees of Company, none of the following events or
circumstances exists and none is threatened: a labor controversy, a claim of
illegal or improper conduct or activities, an unresolved grievance or charge
of unfair labor practice, an arbitration proceeding or a union organizing
effort. Except as described in Schedule 2.10, Company has not received
written notice or, to the Knowledge of Shareholder, verbal notice of any
claim that it has not complied with any applicable legal provision relating
to the employment of labor, including any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security and
similar taxes, equal employment opportunity, employment discrimination and
employment safety, or that the Company is liable for any arrears of wages or
any taxes or penalties or interest for failure to comply with any of the
foregoing. Company has not been the subject of any organizing efforts by any
labor organization, strike, work stoppage, "sickout" or picketing by any
group of persons (whether or not employees).
2.10.4 There is no employee of Company whose employment is not terminable at
will, consistent with applicable federal and state laws and regulations.
2.11 . Except as disclosed on Schedule 2.11, and except for fully insured
claims brought by customers of Company related to ear piercing, Company is
not a party to or, to the Knowledge of Shareholder, threatened with any
suit, action, arbitration, or administrative or other proceeding, either at
law or in equity, or governmental investigation, by or before any court,
governmental department, commission, board, agency or instrumentality,
domestic or foreign; to the Knowledge of Shareholder, there is no basis for
any suit, action, arbitration, or administrative or other proceeding against
Company which could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate; there is no judgment, decree,
award or order of any governmental entity, arbitration, panel or other
tribunal ("Order") outstanding, as of the date of this Agreement, against
Company, and no such Order shall be outstanding against the Company at the
Closing Date except for Orders with which Company shall have fully complied
and which would not materially limit the conduct of the business of the
Company or otherwise have a Material Adverse Effect; and Company is not
contemplating the institution by it of any suit, action, arbitration or
administrative or other proceeding.
<PAGE>
2.12 . Except as disclosed on Schedule 2.12, no director, officer or
employee of Company and no Shareholder or relative or Affiliate of any of
the foregoing (a) has any pecuniary interest in any supplier of Company or
in any other business enterprise with which Company conducts business or
with which Company is in competition; (b) is indebted to Company; or (c) is
a party to any transaction or agreement with Company (apart from such
person's status as an employee or stockholder as such); provided, however,
that the representations made in clauses (a) and (c) as they relate to
employees of the Company (except for Shareholder and his relatives) and
their Affiliates are made to the Knowledge of Shareholder.
2.13 . Except as shown on Schedule 2.13, Company is in material compliance
and has at all times complied in all material respects with all requirements
of law, federal, state and local, and all requirements of all governmental
bodies or agencies having jurisdiction over it, the conduct of its business,
the use of its properties and assets, and all premises occupied by it.
Without limiting the foregoing, Company has obtained and now holds all
material licenses, permits, certificates and authorizations needed or
required for the current conduct of its business and the use of its
properties and the premises occupied by it. Company has properly filed all
material reports and other documents required to be filed with any federal,
state, local and foreign government or subdivision or agency thereof.
Company has not received any notice from any federal, state or local
authority or any insurance or inspection body that any of its properties,
facilities, equipment, or business procedures or practices fails to comply
in any material respect with any applicable law, ordinance, regulation,
building or zoning law, or requirement of any public authority or body. All
licenses, permits, orders and approvals issued by any governmental body or
agency currently in effect and pertaining to the property, assets or
business of Company are disclosed on Schedule 2.13 and, except as noted on
such Schedule, none of the items so listed will lapse or expire prior to the
90th day after Closing.
2.14 Agreement Not in Breach of Other Instruments Affecting Company;
Governmental. Except as disclosed on Schedule 2.14, the execution and
delivery of this Agreement, the consummation of the transactions provided
for herein, and the fulfillment of the terms hereof: (a) will not result in
the imposition of any lien, security interest or encumbrance on any asset of
Company or in the breach of any of the terms and provisions of, or result in
a termination, impairment or modification of or constitute a default under,
or conflict with, or cause any acceleration of any material obligation of
Company under, or permit any other party to modify or terminate, any
material agreement or other instrument (including, without limitation, the
Company's Articles of Incorporation and Bylaws) by which Company is bound,
any Order, or any applicable law, rule or regulation material to the Company
or the conduct of its business, (b) do not require the consent of any
governmental authority or other person or entity (except as may be required
by or with respect to Buyer), and (c) will not result in any limitation or
restriction of any material right of Company, except in all cases described
in (a) and (c), such as relate to the Company's relationship with Buyer and
its Affiliates.
2.15 .ax Matters
2.15.1 Definitions. The following terms shall have the meanings set forth in
this Section 2.15.1:
<PAGE>
"Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute. All references to specific sections of
the Internal Revenue Code shall be deemed to include any provisions of the
Internal Revenue Code (or a related statute) which replace or supersede the
sections in effect at the time this Agreement is executed.
"Regulation" or "Treasury Regulation" means regulations
issued under the Code as such regulations may be amended. All references
herein to specific sections of the Regulations shall be deemed also to refer
to any provisions of the Regulations which replace or supersede the sections
in effect at the time of the execution of this Agreement.
"Return" and "Returns" mean any return, report,
declaration, estimate, information statement, claim for refund, notice, form
or any other kind of document, including any schedule or attachment thereto,
and including amended versions of any of the foregoing, relating to or
required to be filed in connection with any Tax.
"Tax" and "Taxes" means any federal, state (including
District of Columbia), local, foreign (including possessions or territories
of the United States) or other tax (whether income, gross receipts,
franchise, excise, customs, sales, use, value added, ad valorem, real or
personal property, license, transfer, employment, social security or any
other kind of tax or payment in lieu of tax no matter how denominated
including any amount payable by Company pursuant to a tax-sharing or other
agreement relating to the sharing or payment of tax), or any assessment,
levy, impost, withholding, fee or other governmental charge in the nature of
a tax, and shall include all additions to tax, interest, penalties and fines
with respect thereto.
2.15.2 Giving effect to all extensions obtained, Company has filed when due
in a timely fashion all Returns that are required to be filed on or before
the date hereof by or with respect to Company. All such Returns are correct
and complete. Company is not the current beneficiary of any extension of
time within which to file any Return. No claim has been made by a taxing
authority in a jurisdiction where Company does not file Returns that it is
or may be subject to or liable for any Tax imposed by that jurisdiction.
2.15.3 Except as set forth on Schedule 2.15, all Taxes for which Company is
liable and that are due on or before the date hereof (whether or not shown
to be due on any Return) have been paid when due in a timely fashion. There
are no liens on any assets of Company that arose in connection with any
failure (or alleged failure) to pay any Tax other than liens for Taxes not
yet due and payable, or for Taxes that Company or Shareholder are contesting
in good faith through appropriate proceedings as set forth on Schedule 2.15.
2.15.4 Company has withheld or collected and paid or deposited, or will
timely pay and deposit, all Taxes required to have been withheld or
collected and paid or deposited by Company in connection with amounts paid
or owing to any employee, independent contractor, creditor, shareholder or
other third party.
<PAGE>
2.15.5 Except as set forth on Schedule 2.15, no taxing authority has
asserted, or to the Knowledge of Shareholder, threatened to assert, any
adjustment, deficiency or assessment for any Taxes against Company or
Shareholder (with respect to Taxes of Company), and, to the Knowledge of
Shareholder, no basis exists for any such adjustment, deficiency or
assessment which would result in additional taxes owed by Company or
Shareholder (with respect to Company) for any period for which Returns have
been filed. Schedule 2.15 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods
ended on or after December 31, 1993 and indicates those Returns of Company
that have been audited and those Returns of Company and Shareholder (with
respect to Taxes of Company) that currently are the subject of audit.
Shareholder has delivered to Buyer correct and complete copies of all
federal, state, local and foreign income Tax Returns filed, examination
reports issued, and statements of deficiencies assessed against or agreed to
by Company or Shareholder (with respect to Taxes of Company) since December
31, 1993.
2.15.6 Neither Company nor Shareholder (with respect to Taxes of Company)
has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax adjustment, assessment or deficiency
except for such waivers or extensions which, by their terms, have elapsed.
2.15.7 Except as set forth on Schedule 2.15, Company does not have any
income or gain that may be reportable for a period ending after the date
hereof and the Closing Date without the receipt of an equal amount of cash
during such period, which is attributable to a transaction occurring in, or
a change in accounting method made for, a period ending on or prior to the
date hereof.
2.15.8 There are no currently outstanding requests made by either of Company
or Shareholder (with respect to Taxes of Company) for tax rulings,
determinations or information that could affect the Taxes of the Company or
Shareholder (with respect to Taxes of Company).
2.15.9 Schedule 2.15 lists all Returns (other than income tax returns) filed
with respect to Company for taxable periods ending on or after December 31,
1994.
2.15.10 Company has not been obligated to deduct and withhold Taxes under
Code Section 1441.
2.15.11 Shareholder is not a nonresident alien individual within the meaning
of Code Section 7701(b) and shall deliver at Closing a "Nonforeign
Certificate" meeting the requirements of Code Section 1445(b)(2).
<PAGE>
2.15.12 Company was not, within the past six years, a party to any Tax
allocation or sharing agreement except as set forth on Schedule 2.15.
Company has not been a member of an affiliated group defined in Code Section
1504(a) filing a consolidated federal income Tax Return and does not have
any liability for the Taxes of any person or entity under Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor by contract or otherwise. During the past six years,
Company has not been a member of a group of companies filing a unitary,
consolidated or combined state Return except as set forth on Schedule 2.15.
2.15.13 Company is, and at all times since July 1, 1997, has been, qualified
as an "S corporation" under the Code and will be an "S corporation" up to
and including the day before the Closing Date. Company is, and at all times
since July 1, 1997, has been qualified as an "S corporation" in the State of
Florida. With respect to any tax periods ending on or before the date hereof
and the Closing Date, Company is and has not been subject to tax under Code
Section 1363(d) (recapture of LIFO benefits), 1374 (built-in gains) or 1375
(passive investment income). Company has not made an election under Code
Section 1361(b)(3) to treat any wholly owned subsidiary as a "qualified
subchapter S subsidiary." Company in the past 10 years has not acquired
assets from another corporation in a transaction in which Company's Tax
basis for the assets was determined, in whole or in part, by reference to
the Tax basis of the acquired assets (or any other property) held by the
transferor corporation.
2.15.14 Schedule 2.15 sets forth the following information with respect to
Company as of the beginning of its current taxable year (as well as on an
estimated pro forma basis as of the Closing Date giving effect to the
passage of time and the consummation of the transactions contemplated
hereby): (a) the adjusted tax basis in its assets; (b) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax credit, or excess charitable contribution of Company; (c) the
tax elections of Company affecting the character, source, timing and
computation of income, gain, loss, deduction and credits of Company; and (d)
a list of all other actions or items which have a material effect on the
calculation of Taxes payable by Company.
2.15.15 Company has not made, is not obligated to make, and will not, as a
result of the transactions contemplated hereby, make or become obligated to
make any "excess parachute payment" within the meaning of Section 280G of
the Code (determined without regard to subsection (b)(4) thereof).
2.15.16 Company has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
2.15.17 No consent under Code Section 341(f) has been filed and no agreement
has been entered which would require such consent to be filed with respect
to Company.
2.15.18 Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662.
<PAGE>
2.15.19 The unpaid taxes of Company (other than those payable by
Shareholder) will not, as of the Closing Date and, did not, as of June 30,
1998 exceed the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) which will be taken into account in determining the Closing Date
Net Worth and which is set forth on the Warranted Balance Sheet,
respectively.
2.15.20 Company has not changed its annual accounting period for federal tax
purposes since 1992, except as set forth in Schedule 2.15.
2.16 . Except as disclosed on Schedule 2.16, since January 1, 1998, or
August 31, 1998 with respect to subsection 2.16.7 below, Company:
2.16.1 has not taken any action outside of its ordinary and usual
course of business;
2.16.2 has not borrowed any money or become contingently liable
for any obligation or liability of others;
2.16.3 has paid all of its debts and obligations as they became
due;
2.16.4 has not incurred any debt, liability or obligation of any nature to
any party except for obligations arising in the ordinary course of business;
2.16.5 has not knowingly waived any right of material value;
2.16.6 has not issued or agreed to issue any securities or rights
to acquire securities; and
2.16.7 except for (i) payment of compensation, benefits and expenses
consistent with past practices, (ii) the repayment, on or prior to the
Closing Date, of the loans (including accrued interest) described in
Schedule 9.5, (iii) the contingent distribution contemplated by Section
1.3.2, and (iv) distributions contemplated by Section 4A.8, since August 31,
1998, has not transferred, distributed or paid, directly or indirectly, any
money or other property or assets in any manner or for any reason to
Shareholder or relatives or Affiliates of Shareholder.
2.17 [Intentionally Blank]
2.18 .mployee Benefit Plans and ERISA
2.18.1 Definitions. The following terms shall have meanings set forth below
for purposes of this Section 2.18:
<PAGE>
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, or any successor statute. All references to specific
sections of ERISA shall be deemed to include any provisions of ERISA which
replace or supersede the sections in effect at the time this Agreement is
executed.
"ERISA Affiliate" means all persons which are treated as
being under common control or as a single employer (under Section 414(b),
(c), (m) or (o) of the Code) with Company.
"IRS" means the Internal Revenue Service.
"Multiemployer Plan" means a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA) to which Company or any ERISA
Affiliate makes, is obligated to make, or has made or has been obligated to
make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) which Company or any ERISA Affiliate sponsors, maintains, or
to which any of them makes or is obligated to make contributions.
"Plan" means any employee benefit plan (as defined in
Section 3(3) of ERISA), severance, bonus or other incentive compensation,
vacation, change of control, stock option, stock appreciation right, service
award, company car, club membership, relocation, educational assistance,
patent award, employee loan, policy, practice or employment or consultancy
arrangement as to which Company or any ERISA Affiliate sponsors, maintains
or makes or is obligated to make contributions or payments.
"412 Plan" means a pension plan (as defined in Section
3(2) of ERISA) which Company or any ERISA Affiliate sponsors or maintains,
and is covered under Section 412 of the Code.
"Withdrawal Liabilities" means the amount of liability
determined or which may be determined pursuant to Section 4201 of ERISA with
respect to a Multiemployer Plan.
2.18.2 Schedule 2.18.2 separately lists all existing Plans, and separately
identifies all Plans providing retiree benefits.
2.18.3 Schedule 2.18.3 lists each employment, consultancy or similar
agreement with respect to which Company or any ERISA Affiliate is a party,
and a true and complete copy of each such agreement has been provided to
Buyer.
<PAGE>
2.18.4 True and complete copies of the following documents with respect to
any Plan (as applicable) have been delivered to Buyer: (a) the most recent
plan document and trust agreement (including any amendments thereto and
prior plan documents, if amended within the last two years), (b) the most
recent Form 5500 and schedules thereto, (c) the most recent IRS
determination letter, (d) all of the summary plan descriptions, (e) a
written description of each material non-written Plan, and (f) each written
communication to employees intended to describe a Plan or 412 Plan or any
benefit provided by a Plan.
2.18.5 Each Plan is and has been maintained in compliance in all material
respects with applicable law, including but not limited to ERISA, and the
Code and with any applicable collective bargaining agreements or other
contractual obligations.
2.18.6 The only Plan intended to be tax qualified under Section 401(a) of
the Code is the Piercing Pagoda of Florida, Inc. Profit Sharing Plan (the
"PS Plan"). The PS Plan as originally adopted on January 2, 1992 was the
subject of a favorable determination letter issued by the IRS on April 10,
1992. The PS Plan was subsequently amended and restated on April 29, 1997.
The amended and restated PS Plan has not been submitted to the IRS for its
determination on the PS Plan's continued qualification. To the Knowledge of
Shareholder, the amended and restated PS Plan qualifies under Section 401(a)
of the Code and the trusts created thereunder are exempt from tax under the
provisions of Section 501 of the Code.
2.18.7 No Plan constitutes a 412 Plan or a Multiemployer Plan nor is any
Plan subject to Title IV of ERISA.
2.18.8 No Plan which is a welfare plan (as defined in Section 3(1) of ERISA)
provides benefits or coverage extending beyond a participant's termination
of employment except as may be required by Section 4980B of the Code.
Company and all ERISA Affiliates have complied in all material respects with
the notice and continuation coverage requirements of Section 4980B of the
Code.
2.18.9 There are no pending or, to the Knowledge of Shareholder, threatened
claims, actions or lawsuits, other than routine claims for benefits in the
ordinary course, asserted or instituted against any Plan or its assets,
Company with respect to any Plan, or any fiduciary with respect to any Plan
for which Company may be directly or indirectly liable, through
indemnification obligations or otherwise.
2.18.10 Neither Company nor any ERISA Affiliate has engaged, directly or
indirectly, in a non-exempt prohibited transaction (as defined in Section
4975 of the Code or Section 406 of ERISA) in connection with any Plan.
2.18.11 Except as disclosed on Schedule 2.18.11, during the last two years
there have been no amendments to any Plan, nor has any Plan been
established, which resulted in a material increase in the accrued or
promised benefits of any employee of Company.
<PAGE>
2.18.12 Neither Company nor any ERISA Affiliate sponsors, maintains or has
obligations, direct, contingent or otherwise, with respect to any Plan that
is subject to the laws of any country other than the United States law.
2.18.13 No ERISA Affiliate maintains an employee stock ownership plan or
other plan holding securities of Company.
2.18.14 Company has not and is not obligated to make to any current or
former employee of Company or its affiliates, any payment in the form of
wages or other consideration pursuant to any employment agreement or
Employee Benefit Plan that was (in the case of payments made prior to the
Closing) or will constitute (in the case of payments made after Closing), in
the aggregate, an "excess parachute payment" (within the meaning of Section
280G(b) of the Code) as a consequence in whole or in part of the
transactions contemplated by this Agreement, or thereafter, as a consequence
of any change in the ownership of effective control of Company or its
affiliates or any change in the ownership of a substantial portion of
Company's or its affiliate's assets.
2.19 . Company has not incurred any obligation, contingent or otherwise, to
a broker, finder, agent or other intermediary for introducing the parties in
connection with or otherwise procuring this Agreement or the transactions
contemplated hereby.
3. . As material inducement to Buyer to enter into this Agreement and to
consummate the transactions hereunder, Shareholder hereby makes the
following representations and warranties to Buyer:
3.1 . Shareholder owns 250 shares of common stock of Company which
constitute all of the issued and outstanding shares of capital stock of
Company (except for treasury stock). Shareholder has good, marketable and
unencumbered title to such shares, free and clear of all liens, security
interests, pledges, claims, options and rights of others (collectively,
"Stock Rights"). There are no restrictions on Shareholder's right to
transfer such shares to Buyer pursuant to this Agreement. Between the date
hereof and Closing, no transfer of record ownership of, or beneficial
interest in, any of such shares will be made (except that such transfers may
be made for family planning purposes with the prior written consent of
Buyer, which consent shall not be unreasonably withheld if any transferee
agrees to be bound by Shareholder's obligations under this Agreement and
Shareholder continues to be liable for such obligations as fully as if no
such transfers were made), and no Stock Rights with respect to any such
shares will be created.
<PAGE>
3.2 . This Agreement and the documents contemplated hereby have been, or
will be when executed and delivered at or prior to the Closing, duly
executed and delivered by Shareholder and constitute, or will constitute
when executed and delivered, the legal, valid and binding obligations of
Shareholder, enforceable against Shareholder in accordance with their terms,
except as the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and by general principles of equity, whether considered in a
proceeding at law or in equity. No approval of any governmental body or
governmental agency is required to be obtained by Shareholder to consummate
the transactions contemplated hereby, except any approvals heretofore
obtained.
3.3 Agreement Not in Breach of Other Instruments Affecting the Shareholder .
Except as set forth on Schedule 2.14, the execution and delivery of this
Agreement, the consummation of the transactions provided for herein, and the
fulfillment of the terms hereof by the Shareholder do not and will not, with
or without the giving of notice, the lapse of time, or both, result in the
breach of any of the terms and provisions of, or constitute a default under,
or conflict with, any agreement or other instrument (including without
limitation, Company's Articles of Incorporation and Bylaws) by which such
Shareholder is bound, any Order, or any applicable material law, rule or
regulation.
4. . As material inducement to Shareholder to enter into this Agreement,
Buyer makes the following representations and warranties to Company and
Shareholder:
4.1 . Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate
power to acquire the stock to be acquired hereunder. The execution, delivery
and performance of this Agreement and the documents contemplated hereby by
Buyer have been duly authorized by all necessary corporate action on the
part of Buyer, and this Agreement and the documents contemplated hereby
constitute the valid and binding obligation of Buyer, enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and by general principles of equity, whether
considered in a proceeding at law or in equity.
4.2 . The execution and delivery of this Agreement and the documents
contemplated hereby, the consummation of the transactions provided for
herein and therein, and the fulfillment of the terms hereof and thereof by
Buyer do not and will not, with or without the giving of notice, the lapse
of time, or both, result in the material breach of any of the terms and
provisions of, or constitute a default under, or conflict with, or cause any
acceleration of any obligation of Buyer under, any material agreement,
indenture or other instrument by which Buyer is bound, Buyer's Certificate
of Incorporation or Bylaws, any judgment, decree, order, or award of any
court, governmental body, or arbitrator, or any applicable law, rule, or
regulation. No consent of any person or entity is required for the
consummation of the transactions contemplated hereby, except as set forth in
Schedule 4.2.
<PAGE>
4.3 . Buyer has not incurred any obligation, contingent or otherwise, to a
broker, finder, agent or other intermediary for introducing the parties in
connection with or otherwise procuring this Agreement or the transactions
contemplated hereby, except for Howard Lawson & Co., for which obligation
Buyer shall be solely responsible.
4.4 . Buyer represents, warrants and covenants with Shareholder that (i)
inventory and accounts payable information provided by Buyer to Company and,
to the actual knowledge of Buyer, reflected in the financial statements
described in Section 2.4, including the Warranted Balance Sheet, was and is
true and complete in all material respects, and such information to be
provided by Buyer to Company and Shareholder after the date hereof will be
true and complete in all material respects; (ii) inventory has been and
shall be ordered, sent to Company, and priced in the ordinary course of
business consistent with past practices (it being acknowledged that the
impact of inventory on Net Worth and on the Final Closing Date Net Worth is
material to Company and Shareholder), (iii) all merchandise credits are and
shall be accurate and complete, and the information to be provided by Buyer
to Shareholder which is necessary to calculate Final Closing Date Net Worth
shall include credits for all merchandise received by Buyer from Company
through the date used to calculate Final Closing Date Net Worth, and (iv)
credits for returned or damaged inventory will be paid to Company consistent
with past practices at the full purchase price from Buyer.
.A. Covenants of Buyer
. Buyer shall be responsible for any costs, including assumption
fees, incurred with respect to any requirements under the Leases relating to
the transactions contemplated by this Agreement. The Lease Consents (as
defined in Section 8.7 below) shall not be a condition to the obligations of
the parties hereto to close hereunder, and to the extent any Lease Consents
have not been obtained, Buyer, and not Shareholder, shall bear the risks
associated with such failure to obtain such Lease Consents, and the failure
to obtain such consents shall be deemed not to constitute a breach or
default of any representation, warranty or covenant of Shareholder hereunder
or a liability of Shareholder pursuant hereto except to the extent that the
failure to obtain such consents is related to willful misconduct or gross
negligence of Shareholder.
. Buyer shall cause the Company to continue the employment of
the employees of the Company listed on Schedule 2.10 (other than Shareholder
and GSR) who are employees of the Company at Closing (collectively, the
"Employees"), at salaries and on other terms not less favorable in the
aggregate, than those in effect on the Closing Date, which have been
disclosed to Buyer, for a period of at least 90 days (provided, however,
such employment shall continue to be at-will and may be terminated at any
time within such 90-day period for cause), and following the Closing the
Employees shall be entitled to participate in benefit and incentive plans
and programs of Buyer on a basis consistent with employees of Buyer in
comparable positions and with full credit for past service with the Company
(including, where permitted, waiver of any waiting periods).
<PAGE>
. For a period of not less than seven years after the Closing
Date, Buyer shall cause Company to keep in effect, and observe its
obligations under, the indemnification provisions to the Company's By-Laws
as they exist on the date hereof, none of which obligations shall limit
Shareholder's obligations hereunder. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, in the event that
on or at any time after the Closing Date the corporate existence of Company
ceases (through dissolution, merger or otherwise), for the period specified
above, Buyer shall cause the successor in interest to the business of the
Company to provide indemnification to the persons who were entitled to
indemnification under Company's By-Laws to at least the same extent that
such Bylaws provided indemnification to such persons.
. Buyer shall use its reasonable commercial efforts to obtain
any necessary third party consents and take other actions in order to
consummate the transactions contemplated by this Agreement.
. Buyer shall enter into the Agreement with Shareholder. If at
any time the Agreement with Shareholder is terminated, for any reason
whatsoever, Buyer shall pay to Shareholder (i) $150,000 each year, on
January 1, beginning January 1, 1999 and ending with a final payment January
1, 2003; provided that such payments shall be reduced by an amount equal to
the amount of any Salary (as defined in the Agreement with Shareholder)
actually paid to Shareholder pursuant to the Agreement with Shareholder, and
(ii) the payments provided for under Section 9.7 of the Agreement with
Shareholder, at the times and subject to the obligations of Shareholder and
GSR (as defined below) set forth in Article 9 of the Agreement with
Shareholder (which shall continue to be in effect regardless of the
termination of the Agreement with Shareholder). Amounts to be paid to
Shareholder and/or GSR pursuant to the Agreement with Shareholder shall be
subject to set-off as provided in Sections 1.2.2 and 11 hereof.
. Buyer understands and agrees, for itself and its Affiliates,
that this Agreement is being entered into in settlement of that certain
litigation styled Piercing Pagoda of Florida, Inc. vs. Piercing Pagoda, Inc.
and EARS, Inc. (the "Party Litigation"), and that, in the event the
transactions contemplated hereby are not consummated, for any reason
whatsoever, neither this Agreement, any related instrument or document, any
investigation conducted by Buyer or its representatives hereunder and under
the Confidentiality Agreement (as defined below), or the discussions
relating hereto and thereto, may be used by Buyer, its Affiliates,
Shareholder or Company in or with respect to the Party Litigation.
. Buyer shall take such actions as are reasonably requested of
it by Shareholder to assist Shareholder in obtaining, by the Closing Date,
the release of (i) Shareholder and GSR from the Surety Agreement with Buyer,
(ii) Shareholder and GSR from personal guaranties on the Merrill Lynch
Indebtedness (as defined below), and (iii) any and all assets of Shareholder
and/or GSR pledged as collateral for the Merrill Lynch Indebtedness. In
addition, Buyer shall provide the Company with, or cause to be provided to
Company, the funds required to repay in full, at Closing, the loans
described on Schedule 9.5.
<PAGE>
. Buyer shall pay, or cause Company to pay, to Shareholder such
amounts as are payable by Shareholder as federal and state income Taxes
relating to the operation of the Company from September 1, 1998 through the
Closing Date, such payments to be made to Shareholder from time to time at
least three business days prior to the date such Taxes are due and payable
(without interest or penalty), upon prior written notice from Shareholder of
the amounts payable together with adequate documentation to permit Buyer to
determine whether the stated amounts accurately reflect the terms of this
Section 4A.8. Shareholder shall repay to Buyer any amounts paid by Buyer to
Shareholder pursuant to this Section, in the event that this Agreement is
terminated for any reason prior to Closing occurring hereunder. In
determining the amount of Taxes payable by Shareholder relating to the
operation of the Company from September 1, 1998 through the Closing Date,
the benefits and detriments of such operations on the Shareholder's net tax
obligations shall be included in the calculation so that the Shareholder
shall neither benefit from nor be adversely affected by such operations.
. Buyer and its Affiliates have heretofore extended, and shall
continue to extend, the date for payment by the Company of amounts due for
inventory and supplies provided from July 1, 1998 through the Closing Date
to a date subsequent to the Closing Date, and agree that notwithstanding any
other provision of this Agreement to the contrary, such deferral of payment,
without interest, shall not be deemed to be a breach by Shareholder of any
representation, warranty or covenant or any agreements between the Company
and the Buyer or its Affiliates. If for any reason this Agreement is
terminated, the Company shall have 30 days to pay any such amounts which are
past due, without interest or penalty.
. Buyer shall cause Company to pay to Shareholder all payments
received by Company after August 31, 1998 (net of Taxes for which
Shareholder is not responsible, fees and other expenses directly relating
thereto) which arise solely out of acts by Company prior to September 1,
1998 to the extent such payments are not in respect of items reflected in
the Final Closing Date Net Worth.
<PAGE>
5. . All representations and warranties (including any statement, report,
certificate or other document or instrument delivered to Buyer pursuant to
this Agreement or contained in any Schedule attached hereto) made in this
Agreement shall continue to be true and correct in all material respects at
and as of the Closing Date and at all times between the signing of this
Agreement and the Closing Date, as if made at each of such times. If any
party hereto shall learn of a representation or warranty being or becoming
untrue at or prior to Closing, such party shall promptly give notice thereof
to all of the other parties hereto. All representations and warranties
contained herein shall survive the consummation of the transactions provided
for in this Agreement until one year from the Closing Date, except that the
representations and warranties set forth in Sections 2.1, 2.15, 2.18, 3.1,
4.1 and 4.4 (with respect to Section 4.4, only to the extent that a breach
of the representations and warranties contained therein results in liability
to Shareholder pursuant to Section 2.15) shall survive indefinitely. Other
than the covenants and agreements which by their terms are intended not to
survive after the Closing, the covenants and agreements of Shareholder,
Buyer and the Company will survive the Closing. No claim arising out of a
misrepresentation in or breach of any representation, warranty, covenant or
agreement of a party may be asserted by the other party after such
representation, warranty, covenant or agreement has expired unless such
claim is first asserted within the applicable survival period or, with
respect to covenants or agreements which by their terms are intended not to
survive after the Closing, within the first year after the Closing;
provided, however, that claims first asserted within the applicable period
shall not thereafter be barred. Notwithstanding the foregoing, no
misrepresentation in or breach of a representation or warranty made by
Shareholder herein, or Deficiency, shall be deemed to exist, or claimed by
Buyer, to the extent such breach or Deficiency arises out of (i) inventory
and supplies acquired from, or software provided by, Buyer or its Affiliates
or (ii) marketing, sales and ear piercing business practices (excluding
third party personal injury claims that are not covered by the Inverness
Corporation indemnity and which arise out of such business practices)
provided to Company by Buyer or its Affiliates or modeled after the business
practices of Buyer. No representation or warranty contained herein shall be
deemed to have been waived, affected or impaired by any investigation made
by or knowledge of any party to this Agreement.
6. . Subject to the provisions of the Confidentiality Agreement by and among
Shareholder, Company, Buyer, and Ears, Inc., dated August 13, 1998 (the
"Confidentiality Agreement"), upon reasonable prior notice to Shareholder
and during normal business hours, Shareholder shall (i) give to Buyer and
its designated employees or representatives full access to all of the
properties and assets of Company, to Company's stock books, and to all of
Company's documents, books and records relating to its current and past
operations, and (ii) Company shall provide, or permit such employees and
representatives to make, copies of Company's written materials and, subject
to Shareholder's prior reasonable approval, to interview and question
Company's employees.
.A. PS Plan Termination
6A.1 The Company has engaged Jonathan H. Green & Associates,
P.A. ("Green") and Pensions, Inc. ("Pensions") to prepare the necessary
documentation to file with the Internal Revenue Service in connection with
the termination of the PS Plan as of the Closing Date and to provide for its
subsequent liquidation. The parties to this Agreement understand that the
process of securing the Internal Revenue Service's approval of the PS Plan
termination and subsequent liquidation could take an undetermined period of
time from the Closing of the transactions contemplated by this Agreement.
The period commencing from the Closing Date through the full and complete
liquidation of the PS Plan is hereinafter referred to as the "Termination
Period."
<PAGE>
6A.2 During the Termination Period, the parties agree that Green
and Pensions will continue in their respective roles unless and until the
Shareholder directs otherwise, or the Company terminates their services
pursuant to this Section 6A. During the Termination Period, subject to the
provisions of Section 6A.9, the Shareholder shall have the sole and
exclusive authority, on behalf of the Company, to select the professionals
assisting the Company with the termination and liquidation of the Plan (the
"Professionals"); provided, however, that the engagement of the
Professionals shall be subject to the approval of Company, which approval
shall not be unreasonably withheld or delayed.
6A.3 During the Termination Period, the parties agree that the
Shareholder and GSR, or the survivor of them shall remain the trustees of
the PS Plan.
6A.4 During the Termination Period, subject to the provisions of
Section 6A.9, the Shareholder shall have the sole and exclusive authority to
make whatever decisions and amendments to the PS Plan that the Shareholder
deems necessary in order to maintain the PS Plan's continued qualification
and to provide for the PS Plan's proper administration and liquidation;
provided, however, that the Shareholder shall indemnify and hold the Company
harmless against any loss or liabilities arising out of the exercise of such
authority.
6A.5 The Shareholder shall have the sole and exclusive
authority, on behalf of the Company, to deal with the IRS and the
Professionals with respect to all Plan matters, subject to any specific
provisions of this Section 6A, including, without limitation, Section 6A.9.
The parties to this Agreement shall take any and all further action that is
necessary or appropriate to confirm authority over the PS Plan bestowed on
the Shareholder under this Section 6A, including, without limitation, timely
(i) designating Shareholder as an authorized officer of Company (or, in the
event that Shareholder has not been terminated as an authorized officer of
the Company, having him continue as such) and (ii) adopting, confirming or
authorizing action reasonably determined by the Shareholder to be necessary
or appropriate to terminate and liquidate the PS Plan.
6A.6 The parties to this Agreement shall take any and all
further action that is necessary or appropriate for the timely termination
and liquidation of the PS Plan.
6A.7 Upon receipt of the approval of the termination from the
Internal Revenue Service the parties to this Agreement shall take such steps
as are necessary or appropriate so as to liquidate the PS Plan as soon as
administratively practicable in accordance with applicable provisions of
ERISA and the Code and any applicable rules and regulations relating
thereto.
6A.8 During the Termination Period, the Shareholder and/or the
Professionals shall provide the President of the Company, or the President's
designee, copies of all documents or other materials proposed to be filed
with the IRS relating to the PS Plan not less than five (5) business days in
advance of the anticipated filing date, and the Company shall have an
opportunity to review such filings and consult with the Shareholder and the
Professionals concerning such filings, during the period prior to the filing
date. Shareholder and the Professionals shall also provide to the President
of the Company, or his designee, copies of all correspondence or other
materials received from the Internal Revenue Service, or any other person
concerning the PS Plan promptly after receipt thereof.
<PAGE>
6A.9 Notwithstanding anything in this Section 6A to the
contrary, the Company shall have the right to assume control of the PS Plan
termination and liquidation process and to directly supervise and effect the
PS Plan termination and liquidation as contemplated in this Section 6A at
any time following the first to occur of (a) receipt of any notification
that the Internal Revenue Service has asserted or has threatened to assert
any challenge concerning the qualification of the PS Plan or the deductions
taken by the Company relating to the PS Plan; or (b) September 1, 1999. If
Company has the right to assume control of the PS Plan termination and
liquidation under this Section 6A.9, Company shall have the right, at its
sole discretion, to remove and replace the Professionals under the PS Plan,
and the Shareholder shall have no further authority with respect to the PS
Plan, (except that Shareholder shall be permitted to continue as trustee
under the Plan) except as may otherwise be specifically permitted by the
Company, at its discretion. If Company exercises its rights under this
Section 6A.9, Company shall thereafter keep the Shareholder informed of the
process and be required to proceed with the termination and liquidation of
the PS Plan as soon as administratively practicable. If Company, pursuant to
its authority under this Section 6A.9, elects to remove and replace the
Professionals, any substitute Professionals engaged by Company shall be
subject to the approval of the Shareholder, which approval shall not be
unreasonably withheld or delayed.
6A.10 Except for the obligation to make the contribution
described in Section 6A.11 hereof, the Shareholder represents and warrants
that the Company has no obligation to make any contributions to the PS Plan
subsequent to the date hereof, nor shall the Company have any liability or
obligation with respect to the past or future operation, termination or
liquidation of the PS Plan and its associated trust. The Shareholder shall
indemnify and hold the Company harmless against any obligation, loss or
liability that may arise out of the past or future operation, termination or
liquidation of the PS Plan and its associated trust; provided, however, that
if Company assumes control of the termination and liquidation process,
Company shall be responsible for its acts and omissions which occur after
such assumption of control (it being specifically understood and agreed that
Shareholder shall indemnify and hold the Company harmless against any loss
or liability arising out of acts or omissions of Shareholder as trustee with
respect to the PS Plan, as to which Company has not given its prior written
consent, after Company has assumed control of the termination and
liquidation thereof).
6A.11 Prior to the date hereof, the Company has paid all
required expenses relating to the PS Plan. The Company has made a
contribution in the amount of $79,500 to the PS Plan in July, 1998.
<PAGE>
6A.12 Each of Company and the Shareholder shall be responsible
for, and shall pay directly, fifty percent (50%) of all costs and expenses
relating to the maintenance, operation, termination and liquidation of the
PS Plan, including, without limitation, the fees and expenses of the
Professionals; provided, however, that in no event shall Company have any
obligation to make any contribution to the PS Plan except to the extent that
such funds are paid to Company by the Shareholder for such purpose;
provided, further, however, that the Shareholder shall be responsible for,
and shall pay directly, all costs and expenses in excess of $12,000, in the
aggregate, relating to the maintenance, operation, termination and
liquidation of the PS Plan, including, without limitation, the fees and
expenses of the Professionals. Except as otherwise provided in this Section
6A.12 or Section 6A.9, the Shareholder shall be responsible for all PS Plan
Liabilities, as hereinafter defined. The Shareholder shall indemnify and
hold the Company harmless against PS Plan Liabilities which the Company is
required to pay unless such PS Plan Liabilities arise out of acts or
omissions of Company after Company assumes control of the termination and
liquidation of the PS Plan pursuant to Section 6A.9 (it being specifically
understood and agreed that Shareholder shall indemnify and hold the Company
harmless against any loss or liability arising out of acts or omissions of
Shareholder as trustee with respect to the PS Plan, as to which Company has
not given its prior written consent, after Company has assumed control of
the termination and liquidation thereof). For purposes of this Section 6A,
the term "PS Plan Liabilities" shall mean any fines, penalties, taxes or
other charges which might be assessed, levied or otherwise imposed upon the
PS Plan or its related trust or upon the Company at any time after the
Closing Date by reason of or attributable to any transactions involving the
PS Plan, and any other amounts required to be paid by the Company after the
Closing Date to the PS Plan or to any other person as a result of any
transaction, or any act or omission, involving the PS Plan (along with any
costs and expenses, including attorneys' fees and expenses). Company shall
give prompt written notice to the Shareholder of any claims as to which
indemnity shall be sought in connection with PS Plan Liabilities and shall
permit the Shareholder, at his sole cost and expense, to assume the defense
of any such claim or any litigation resulting therefrom provided that the
Shareholder has agreed to be liable to Company for such PS Plan Liabilities;
provided, however, that counsel for the Shareholder who shall conduct the
defense of said claim or litigation shall be reasonably satisfactory to
Company and that Company may participate in such defense at its own expense;
provided, further, however, that the failure by Company to give notice as
provided herein shall not relieve the Shareholder of his obligations, except
to the extent that the Shareholder is damaged as a result of the failure to
give timely notice.
7. . Between the date hereof and the Closing hereunder, Shareholder shall
use his reasonable commercial efforts to cause Company to:
7.1 not take or suffer or permit any action which would render untrue any of
the representations or warranties of Company herein contained, including
without limitation Section 2.16, and not omit to take any action, the
omission of which would render untrue any such representation or warranty;
7.2 conduct its Business in a good and diligent manner in the
ordinary and usual course;
7.3 except as contemplated or permitted by this Agreement (including the
Schedules hereto), not enter into any contract, agreement, commitment or
arrangement with any party (other than Buyer or its Affiliates), other than
contracts involving a maximum obligation per annum of less than $10,000
individually and $100,000 in the aggregate in the ordinary and usual course
of its Business, and not amend, modify or terminate any Company Agreement
without the prior written consent of Buyer, which shall not be unreasonably
withheld;
<PAGE>
7.4 use its reasonable commercial efforts to preserve its Business
organization intact and to keep available the services of its employees
(except those that may be terminated in accordance with ordinary business
practices), provided that nothing herein shall require Shareholder or
Company to increase the compensation or benefits of such employees;
7.5 not reveal, orally or in writing, to any party, other than Buyer and
Buyer's authorized agents, any of the proprietary procedures and practices
followed by it in the conduct of its Business;
7.6 maintain in full force and effect all of the insurance policies listed
on Schedule 2.8 and make no change in any insurance coverage which is
adverse to Company without the prior written consent of Buyer;
7.7 consistent with past practices, keep the premises occupied by it and all
of its equipment and other tangible personal property in good order and
repair and perform all necessary repairs and maintenance;
7.8 continue to maintain all of its usual Business books and records
in accordance with its past practices;
7.9 not amend its Articles of Incorporation or Bylaws, except as may be
required to comply with the representations, warranties, covenants and
agreements herein;
7.10 not permit Net Worth as of August 31, 1998 to become less than
$300,000;
7.11 not waive any material right or cancel any material claim;
7.12 not increase the compensation or rate of compensation payable to any of
its employees, except that Buyer shall not unreasonably withhold its consent
as to increases that do not exceed 5% per annum made in the ordinary course
of business consistent with past practices;
7.13 maintain its corporate existence and not merge or consolidate
with any other entity;
7.14 comply in all material respects with all provisions of any Company
Agreement applicable to it and all applicable material laws, rules and
regulations;
7.15 not make any capital expenditure exceeding $10,000 as to any individual
expenditure or series of related expenditures, and not exceeding $100,000 in
the aggregate, except (i) pursuant to Company Agreements described in
Section 2.9, (ii) replacement of kiosks in the ordinary course of business,
or (iii) with the prior written consent of Buyer, which shall not be
unreasonably withheld; 1.1
<PAGE>
7.16 except for indebtedness incurred to pay amounts due to Buyer or its
Affiliates in the ordinary course of business, not borrow any amounts
exceeding $100,000; and
7.17 use its reasonable commercial efforts to obtain any necessary third
party consents and take other actions in order to consummate the
transactions contemplated by this Agreement.
. Except as contemplated by Sections 1.3.2 and 2.16.7 above, the
Shareholder shall cause Company not to transfer, distribute or pay, directly
or indirectly, any money or other property or assets in any manner or for
any reason to Shareholder or relatives or Affiliates of Shareholder, after
August 31, 1998.
8. . The following shall be conditions precedent to the obligation of Buyer
to close hereunder, any of which may be waived in whole or in part by Buyer:
8.1 Each of the representations and warranties of Shareholder contained in
this Agreement is now and, except as to those expressly limited to the date
hereof or some other specific date, at all times after the date of this
Agreement to and including the time of Closing shall be, true and correct
individually and collectively in all material respects.
8.2 Each of the agreements, covenants and undertakings of Shareholder
contained in this Agreement, except for those calling for performance after
Closing, will have been fully performed and complied with both individually
and collectively in all material respects at or before Closing.
8.3 Since the date of the Warranted Balance Sheet, there has not been, and,
to the Knowledge of Shareholder, there is not threatened, any Material
Adverse Effect or any material physical damage or loss to any of Company's
properties or assets or to the premises occupied by Company (whether or not
such damage or loss is covered by insurance).
8.4 No litigation, governmental action or other proceeding which could
reasonably be expected to have a Material Adverse Effect shall be threatened
or commenced against Company or Shareholder with respect to any matter; no
material litigation, governmental action or other proceeding shall be
threatened or commenced against Company or Shareholder with respect to the
consummation of the transactions provided for herein.
8.5 All indebtedness owing to Company by any director, officer or employee
of Company, except for the employee indebtedness described on Schedule 8.5,
will be paid in full at or prior to Closing.
<PAGE>
8.6 All documents required by the terms of this Agreement (including the
Employment and Noncompetition Agreement) to be delivered by Shareholder at
or prior to Closing shall have been delivered or shall be tendered at the
time and place of Closing.
8.7 All consents (excluding consents of landlords (the "Lease Consents")
with respect to the Leases) that are required to be obtained in connection
with the transactions contemplated by this Agreement, shall have been
obtained.
8.8 The consents specified in Schedule 4.2 shall have been obtained.
------------
9. . The following shall be conditions precedent to the obligation of
Shareholder to close hereunder, any of which may be waived in whole or in
part by Shareholder:
9.1 Each of the representations and warranties of Buyer contained in this
Agreement is now and, except as to those expressly limited to the date
hereof or some other specified date, at all times after the date of this
Agreement to and including the time of Closing shall be, true and correct
individually and collectively in all material respects.
9.2 Each of the agreements, covenants, and undertakings of Buyer contained
in this Agreement, except for those calling for performance after Closing,
will have been fully performed and complied with both individually and
collectively in all material respects at or before Closing.
9.3 No material litigation, governmental action or other proceeding shall be
threatened or commenced against Buyer with respect to the consummation of
the transactions provided for herein.
9.4 The Closing Date Payment and all documents required by the terms of this
Agreement (including the Employment and Noncompetition Agreement) to be
delivered by Buyer at or prior to Closing shall have been delivered or shall
be tendered at the time and place of Closing.
9.5 The principal and accrued interest on the loans described in Schedule
9.5 shall have been repaid in full, and any payments due to Shareholder
pursuant to Sections 1.2.1 and 4A.8 above, shall have been paid to
Shareholder.
<PAGE>
9.6 The principal and interest due under (i) that certain WCMA, Term Loan
and Security Agreement and Collateral Installment Note by and between
Merrill Lynch Business Financial Services Inc. ("MLBFS") and Company, all
dated as of January 27, 1997, (ii) Term Loan and Security Agreement and
Collateral Installment Note by and between MLBFS and Company, all dated
January 28, 1997 and (iii) that certain Term Loan and Security Agreement by
and between MLBFS and Company, that certain Collateral Installment Note of
Company held by MLBFS and Line of Credit extended by MLBFS to Company, all
dated as of March 27, 1998 (collectively, the "Merrill Lynch Indebtedness"),
shall have been paid in full by Buyer (or by Company with funds provided by
Buyer).
10. .losing
10.1 . The closing of the transactions provided for in this Agreement
(herein sometimes called the "Closing") shall take place at Steel, Hector &
Davis LLP, 200 South Biscayne Boulevard, Miami, Florida 33131-2398 on such
date specified in writing by either party to the other party (provided that
such notice shall not be given until all conditions to be satisfied prior to
Closing have been satisfied or waived and Closing shall not occur less than
ten days or more than 20 days after such notice is given), or such other
place and time as shall be agreed to between Buyer and Shareholder. The date
and time of Closing is sometimes herein called the "Closing Date."
10.2 . At Closing, Shareholder will deliver or cause to be delivered to
Buyer the following:
10.2.1 certificates for 250 shares of common stock of Company, endorsed by
Shareholder in blank, or with stock transfer powers executed by Shareholder
in blank attached;
10.2.2 certificate of Shareholder, dated as of the Closing Date, confirming
(a) the truth and correctness in all material respects (unless waived by
Buyer) of all of the representations and warranties of Shareholder contained
herein as of the Closing Date and as of all times between the date hereof
and the Closing Date, and (b) that all agreements and covenants of
Shareholder specified herein have been complied with in all material
respects (unless waived by Buyer);
10.2.3 except as otherwise agreed by Buyer, the signed resignations of all
directors and all officers of Company dated and effective as of the Closing
Date;
10.2.4 the stock books and records, corporate minute books and the
corporate seal of Company;
10.2.5 the Escrow Agreement executed by Shareholder;
10.2.6 an employment and noncompetition agreement in the form attached
hereto as Exhibit B, executed by Shareholder and, as to non-competition
only, Gina S. Russ ("GSR") (the "Agreement with Shareholder");
10.2.7 releases in favor of Company and Buyer executed by Shareholder and by
each director and officer of Company, in substantially the form attached as
Exhibit C hereto;
<PAGE>
10.2.8 a "good standing" certificate for Company and a certified copy of the
Articles of Incorporation and all amendments thereto issued by the
Department of State of Florida and dated as of a date within five (5) days
prior to the Closing Date;
10.2.9 a certification by Shareholder pursuant to the Foreign Investment
Real Property Tax Act, in the form attached hereto as Exhibit D;
10.2.10 the favorable legal opinion of counsel for Shareholder dated the
Closing Date, in substantially the form set forth in Exhibit E attached
hereto; and
10.2.11 the agreement of GSR with regard to joint property and related
matters in the form of Exhibit F attached hereto (the "Joint Property
Agreement").
10.3 . At the Closing, Buyer will deliver or cause to be delivered to the
Shareholder the following:
10.3.1 the Closing Date Payment to Shareholder in cash by wire transfer of
immediately available funds to an account designated by Shareholder;
10.3.2 the Holdback Amount to the Escrow Agent by wire transfer;
10.3.3 the Escrow Agreement executed by Buyer and the Escrow Agent;
10.3.4 the Agreement with Shareholder executed by Buyer;
10.3.5 the Certificate of the Chairman, President or a Vice-President of
Buyer, dated the Closing Date, confirming (a) the truth and correctness in
all material respects (unless waived by Shareholder) of all of the
representations and warranties of Buyer contained herein as of the Closing
Date and as of all times between the date hereof and the Closing Date, and
(b) that all agreements and covenants of Buyer specified herein have been
complied with in all material respects (unless waived by Shareholder);
10.3.6 releases in favor of Shareholder and each officer and director of
Company executed by Buyer, Ears, Inc. and Company in substantially the form
attached hereto as Exhibit G;
10.3.7 the favorable legal opinion of counsel for Buyer dated the Closing
Date, in substantially the form set forth in Exhibit H; and
10.3.8 evidence reasonably satisfactory to Shareholder that the Merrill
Lynch Indebtedness has been paid in full.
<PAGE>
11. .ndemnification of Buyer
11.1 . Shareholder hereby indemnifies and agrees to hold harmless Buyer and
its successors and assigns and each such entity's officers, directors,
shareholders and agents (each of whom shall be a third party beneficiary
hereof) from, against and in respect of the amount of any and all
Deficiencies (as hereinafter defined).
11.2 As used in this Section 11, "Deficiencies" means any and all loss or
damage resulting from:
11.2.1 any misrepresentation, breach of warranty, or any non-fulfillment of
any representation or warranty (including any statement, report, certificate
or other document or instrument delivered to Buyer pursuant to this
Agreement or contained in any Schedule attached hereto), covenant or
agreement on the part of Shareholder contained herein, in each case only for
such period as such representation, warranty, covenant or agreement survives
the Closing;
11.2.2 any claim, debt, liability, obligation, loss, fine, penalty or damage
suffered by Company or incurred by Company to any party, incurred prior to
Closing hereunder or arising from any matter or thing occurring prior to
Closing hereunder, including but not limited to claims made by governmental
authorities for Taxes or otherwise, provided that, for purposes of this
Section 11.2.2, Deficiencies shall not include liabilities which were
included in the calculation of the Final Net Worth Adjustment and shall not
include liabilities arising out of third party claims against landlords of
Company;
11.2.3 the Net Worth Adjustment Deficiency;
11.2.4 PS Plan Liabilities other than any such liabilities arising out of
acts or omissions of Company after Company assumes control of the
termination and liquidation of the PS Plan pursuant to Section 6A.9 (it
being specifically understood and agreed that PS Plan Liabilities arising
out of acts or omissions of Shareholder as trustee with respect to the PS
Plan, as to which Company has not given its prior written consent, after
Company has assumed control of the termination and liquidation thereof shall
be a Deficiency); and
11.2.5 any and all actions, suits, proceedings, demands, assessments,
judgments, reasonable attorneys' fees, costs, expenses and interest incident
to any of the foregoing.
For purposes of this Section 11, the term "Restricted
Deficiencies" means all Deficiencies other than Deficiencies pursuant to (x)
Section 11.2.3, (y) Section 11.2.4 and (z) Section 11.2.2 to the extent
relating to Taxes, and Deficiencies pursuant to Section 11.2.5 to the extent
relating to clauses (x), (y) and (z).
<PAGE>
11.3 .rocedures for Establishment of Deficiencies
11.3.1 In the event that any claim shall be asserted against Buyer or
Company which, if sustained, would result in a Deficiency, Buyer, within a
reasonable time after learning of such claim, shall notify Shareholder of
such claim, and shall extend to Shareholder a reasonable opportunity to
defend against such claim, at Shareholder's sole expense and through legal
counsel reasonably satisfactory to Buyer, provided that Shareholder proceeds
in good faith, expeditiously and diligently and provided further that
Shareholder agrees in good faith, based on the information available at the
time, that it is reasonable to believe that Shareholder would be liable for
such Deficiency. No effort to recover the amount of the Deficiency related
to such claim shall be made by Buyer pursuant to Section 11.3.2 while such
defense is still being made until the earlier of (a) the resolution of said
claim by Shareholder with the claimant, or (b) the termination of the
defense by Shareholder against such claim or the failure of Shareholder to
prosecute such defense in good faith in an expeditious and diligent manner.
Buyer shall be entitled to rely upon the opinion of its counsel as to the
occurrence of either of said events. Buyer shall, at its option and expense,
have the right to participate in any defense undertaken by Shareholder with
legal counsel of its own selection. No settlement or compromise of any claim
which may result in a Deficiency may be made by Shareholder without the
prior written consent of Buyer unless prior to such settlement or compromise
Shareholder acknowledges in writing his obligation to pay in full the amount
of the settlement or compromise and all associated expenses (subject to the
provisions of Section 11.5 below) and Buyer is furnished with security
reasonably satisfactory to Buyer that Shareholder will in fact pay such
amount and expenses, or that such amount and expenses can and will be
satisfied from the Escrow.
11.3.2 In the event that Buyer asserts the existence of any Deficiency,
Buyer shall give written notice to Shareholder of the nature and amount of
the Deficiency asserted. If Shareholder, within a period of 30 days after
the giving of such notice by Buyer, shall not give written notice to Buyer
announcing his intention to contest such assertion of Buyer (such notice by
Shareholder being hereinafter called the "Contest Notice"), such assertion
of Buyer shall be deemed accepted and the amount of the Deficiency shall be
deemed established. In the event, however, that a Contest Notice is given to
Buyer within said 30-day period, then the parties shall endeavor in good
faith to resolve their dispute and, if they have failed to do so within 20
days, the contested assertion of a Deficiency shall be settled by
arbitration to be held in Miami, Florida in accordance with the commercial
arbitration rules of the American Arbitration Association then obtaining.
The determination of the arbitrator(s) shall be delivered in writing to
Shareholder and Buyer and shall be final, binding and conclusive upon all of
the parties hereto, and the amount of the Deficiency, if any, determined to
exist by the arbitrator(s) shall be deemed established.
11.3.3 Buyer and Shareholder may agree in writing, at any time, as to the
existence and amount of a Deficiency, and, upon the execution of such
agreement, such Deficiency shall be deemed established.
<PAGE>
11.4 . Buyer and Shareholder shall provide joint instructions to the Escrow
Agent to release from Escrow the amount of all established Deficiencies
(subject at all times to the provisions of Section 11.5 below). If the
amount held in Escrow is insufficient to cover established Deficiencies,
then the amount of any established Deficiency not paid out of Escrow
(subject at all times to the provisions of Section 11.5 below) may be
set-off against any amounts payable by Buyer to Shareholder and GSR pursuant
to the Agreement with Shareholder. To the extent the funds in Escrow and the
amounts then payable to Shareholder and GSR pursuant to the Agreement with
Shareholder are insufficient, Shareholder hereby agrees to pay the amount of
each established Deficiency to Buyer within five days after the
establishment thereof in cash (subject at all times to the provisions of
Section 11.5 below). Notwithstanding anything herein to the contrary, the
parties shall make appropriate adjustments for insurance coverage and for
any Tax benefits (only, however, to the extent such benefits are actually
realized) in determining Deficiencies for purposes of this Agreement.
11.5 . Notwithstanding the foregoing, there shall be no liability for any
Restricted Deficiency: (a) unless the aggregate of all Restricted
Deficiencies exceeds $100,000, in which event there shall be liability for
all Restricted Deficiencies in excess of $100,000, and (b) with respect to
claims arising pursuant to Section 11.2.1, unless the claim therefor has
been asserted pursuant to Section 11.3 within the period provided by the
third sentence of Section 5. In addition, there shall be no liability for:
(i) any Restricted Deficiency to the extent that claims for indemnification
asserted during the first year after the Closing Date in respect of
Restricted Deficiencies have resulted in aggregate payments of $3.0 million;
(ii) any Restricted Deficiency to the extent that claims for indemnification
asserted during the first two years after the Closing Date in respect of
Restricted Deficiencies have resulted in aggregate payments of $2.0 million;
or (iii) any Restricted Deficiency to the extent that claims for
indemnification asserted during the first three years after the Closing Date
in respect of Restricted Deficiencies have resulted in aggregate payments of
$1.0 million. In addition, there shall be no liability for any Restricted
Deficiency to the extent the related claims for indemnification are not
asserted within the first three years after the Closing Date.
Notwithstanding anything to the contrary contained in this Section 11.5,
there shall be no limitation on the amount of liability for any Deficiency
which is not a Restricted Deficiency.
11.6 . The remedies of Buyer provided herein shall be the sole and exclusive
remedies of Buyer and its Affiliates (including, following the Closing, the
Company) and none of them shall assert any other right, or seek any other
remedies against Shareholder or his Affiliates; provided, however, that
notwithstanding the foregoing, (i) Buyer may seek injunctive relief and
other equitable remedies against Shareholder and GSR, (ii) Buyer may pursue
any claims for fraud against Shareholder, and (iii) nothing herein shall
limit the obligations of Shareholder with respect to any covenants and
agreements to be performed following the Closing.
<PAGE>
.1A. Indemnification of Shareholder
. Buyer hereby indemnifies and agrees to hold harmless
Shareholder, GSR and their respective successors and assigns and each such
person's or entity's agents (each of whom shall be a third party beneficiary
hereof) from, against and in respect of the amount of any and all
Shareholder Deficiencies (as hereinafter defined).
As used in this Section 11A, "Shareholder Deficiencies" means
any and all loss or damage resulting from:
11A.2.1 any misrepresentation, breach of warranty, or any
non-fulfillment of any representation or warranty (including any statement,
report, certificate or other document or instrument delivered to the
Shareholder pursuant to this Agreement or contained in any Schedule
delivered by Buyer attached hereto), covenant or agreement on the part of
Buyer contained herein, in each case only for such period as such
representation, warranty, covenant or agreement survives the Closing;
11A.2.2 any actual or alleged claim, debt, liability,
obligation, loss, fine, penalty or damage (collectively, "Damages") relating
to this Agreement or Company suffered by Shareholder or incurred by
Shareholder to any party, arising from any matter or thing occurring after
Closing hereunder, including but not limited to claims made by governmental
authorities for taxes or otherwise, provided that Shareholder Deficiencies
shall not include any Damages arising from or otherwise related to any
matter or thing occurring after the Closing hereunder for which Buyer would
be entitled to indemnification from Shareholder pursuant to Section 11 above
without consideration of any survival periods or limitation on liability;
and
11A.2.3 any and all actions, suits, proceedings, demands,
assessments, judgments, reasonable attorneys' fees, costs, expenses and
interest incident to any of the foregoing.
.1A.3 Procedures for Establishment of Shareholder Deficiencies
<PAGE>
11A.3.1 In the event that any claim shall be asserted
against Shareholder which, if sustained, would result in a Shareholder
Deficiency, Shareholder, within a reasonable time after learning of such
claim, shall notify Buyer of such claim, and shall extend to Buyer a
reasonable opportunity to defend against such claim, at Buyer's sole expense
and through legal counsel reasonably satisfactory to Shareholder, provided
that Buyer proceeds in good faith, expeditiously and diligently and provided
further that Buyer agrees in good faith, based on the information available
at the time, that it is reasonable to believe that Buyer would be liable for
such Deficiency. No effort to recover the amount of the Shareholder
Deficiency related to such claim shall be made by Shareholder pursuant to
Section 11A.3.2 while such defense is still being made until the earlier of
(a) the resolution of said claim by Buyer with the claimant, or (b) the
termination of the defense by Buyer against such claim or the failure of
Buyer to prosecute such defense in good faith in an expeditious and diligent
manner. Shareholder shall be entitled to rely upon the opinion of its
counsel as to the occurrence of either of said events. Shareholder shall, at
its option and expense, have the right to participate in any defense
undertaken by Buyer with legal counsel of its own selection. No settlement
or compromise of any claim which may result in a Shareholder Deficiency may
be made by Buyer without the prior written consent of Seller unless prior to
such settlement or compromise Buyer acknowledges in writing its obligation
to pay in full the amount of the settlement or compromise and all associated
expenses (subject to the provisions of Section 11A.5 below) and Shareholder
is furnished with security reasonably satisfactory to Shareholder that Buyer
will in fact pay such amount and expenses.
11A.3.2 In the event that Shareholder asserts the
existence of any Shareholder Deficiency, Shareholder shall give written
notice to Buyer of the nature and amount of the Shareholder Deficiency
asserted. If Buyer, within a period of 30 days after the giving of such
notice by Shareholder, shall not give written notice to Shareholder
announcing its intention to contest such assertion of Shareholder (such
notice by Buyer being hereinafter called the "Buyer Contest Notice"), such
assertion of Shareholder shall be deemed accepted and the amount of the
Shareholder Deficiency shall be deemed established. In the event, however,
that a Buyer Contest Notice is given to Shareholder within said 30-day
period, then the parties shall endeavor in good faith to resolve their
dispute and, if they have failed to do so within 20 days, the contested
assertion of a Shareholder Deficiency shall be settled by arbitration to be
held in Miami, Florida in accordance with the commercial arbitration rules
of the American Arbitration Association then obtaining. The determination of
the arbitrator(s) shall be delivered in writing to Shareholder and Buyer and
shall be final, binding and conclusive upon all of the parties hereto, and
the amount of the Shareholder Deficiency, if any, determined to exist by the
arbitrator(s) shall be deemed established.
11A.3.3 Buyer and Shareholder may agree in writing, at any
time, as to the existence and amount of a Shareholder Deficiency, and, upon
the execution of such agreement, such Shareholder Deficiency shall be deemed
established.
. Buyer hereby agrees to pay the amount of each established
Shareholder Deficiency (subject at all times to the provisions of Section
11A.5 below) to Shareholder within five days after the establishment thereof
in cash. Notwithstanding anything herein to the contrary, the parties shall
make appropriate adjustments for insurance coverage and for any tax benefits
(only, however, to the extent such benefits are actually realized) in
determining Shareholder Deficiencies for purposes of this Agreement.
. Notwithstanding the foregoing, there shall be no liability for
any Shareholder Deficiency pursuant to Section 11A.2.1 (exclusive of claims
arising under Section 4.4 and covenants to be performed by Buyer after
Closing): (a) unless the aggregate of all Shareholder Deficiencies exceeds
$10,000, in which event there shall be liability for all Shareholder
Deficiencies in excess of $10,000, and (b) with respect to claims arising
pursuant to Section 11A.2.1, unless the claim therefor has been asserted
pursuant to Section 11A.3 within the period provided by the third sentence
of Section 5.
<PAGE>
. The remedies of Shareholder provided herein shall be the sole
and exclusive remedies of Shareholder and his Affiliates and none of them
shall assert any other right, or seek any other remedies against Buyer or
its Affiliates; provided, however, that notwithstanding the foregoing, (i)
Shareholder may seek injunctive relief and other equitable remedies against
Buyer, (ii) Shareholder may pursue any claims for fraud against Buyer, and
(iii) nothing herein shall limit the obligations of Buyer with respect to
any covenants and agreements to be performed following the Closing.
12. . Buyer and Shareholder agree to execute and deliver all such other
instruments and take all such other action as any party may reasonably
request from time to time, before or after Closing and without payment of
further consideration, in order to effectuate the transactions provided for
herein and, following the Closing, to terminate with prejudice all
litigation by Company against Buyer and any Affiliate of Buyer, and any
counterclaims by Buyer or any Affiliate against Company, its Affiliates or
assets. The parties shall cooperate fully with each other and with their
respective counsel and accountants in connection with any steps required to
be taken as part of their respective obligations under this Agreement,
including, without limitation, the preparation of financial statements and
tax returns.
13. .ax Covenants Relating to Company and Shareholder
13.1 The following provisions shall govern the allocation of responsibility
as between Buyer, Company and Shareholder for certain Tax matters following
the date hereof.
13.1.1 Shareholder at his expense shall timely prepare or cause to be
prepared and file or cause to be filed all Returns for Company for all tax
periods ending on or prior to the Closing Date which are filed after the
Closing Date. Copies of all such Returns shall be made available to Buyer at
least 10 days prior to the date on which they are to be filed. Shareholder
shall include any income, gain, loss, deduction or other tax items for such
periods on his applicable Returns in a manner consistent with the Schedule
K-1s furnished to him for such periods. Buyer and Shareholder acknowledge
and agree that the status of Company as an "S corporation" will terminate at
the close of business on the day prior to the Closing Date and that
Company's final "S corporation" tax year will end at such time. If any such
Return indicates that Company has incurred any liability for Tax, the
Shareholder shall cause such Tax to be paid to the appropriate tax authority
on or before the last date on which payment thereof may be made without
penalty unless such Tax has been accrued in computing the Final Closing Date
Net Worth. In the event the Closing Date is after August 31, 1998, Buyer
shall pay, or cause the Company to pay, such amounts as may be payable to
the Shareholder pursuant to Section 4A.8 hereof.
<PAGE>
13.1.2 Buyer at its expense shall timely prepare or cause to be prepared and
file or cause to be filed all Returns for Company for Tax periods which
begin on or before the Closing Date and end after the Closing Date and shall
pay the Taxes due with respect to such Returns. Shareholder shall pay to
Buyer the excess of (1) a pro rated amount (calculated as described in
Section 13.1.2.1 or 13.1.2.2) of the Taxes of Company for any such period
over (2) the amount of the Taxes paid by Company on or prior to the Closing
Date with respect to such period or accrued in computing the Final Closing
Date Net Worth. Such payment by Shareholder to Buyer shall be made within 15
days after receipt by Shareholder of a request for payment from Buyer which
includes the Return, if available, or any other document used to calculate
the pro rated amount of the Taxes.
13.1.2.1 In the case of all Taxes imposed upon or measured by property or
capital, the pro rated amount shall be based upon the number of days in the
period up to and including the earlier of the Closing Date or August 31,
1998, divided by the total number of days in the tax period.
13.1.2.2 In the case of all Taxes other than those imposed upon or measured
by property or capital, including but not limited to net income, gross
receipts taxes, sales and use taxes, and payroll taxes, the pro rated amount
shall be based upon the transactions occurring on or before the earlier of
the Closing Date or August 31, 1998.
13.2 All tax sharing agreements or similar agreements with respect to or
involving Company shall be terminated as of the earlier of the Closing Date
or August 31, 1998 and, after such date, Company shall not be bound thereby
or have any liability thereunder.
13.3 All transfer (including real estate), documentary, sales, use, stamp,
registration and other such Taxes incurred in connection with this Agreement
shall be paid by Shareholder when due, and Shareholder shall, at its own
expense, file all necessary Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other
Taxes and, if required by applicable law, Buyer will join in the execution
of any such Returns and other documentation.
13.4 Buyer and Shareholder shall cooperate fully (and cause the Company to
cooperate fully), as and to the extent reasonably requested by the other
party, in connection with the preparation, execution and filing of Returns
pursuant to this Agreement and any audit, contest, litigation or other
proceeding with respect to Taxes. Such cooperation shall include retention
and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making themselves, in the case of the Shareholder, and
employees, in the case of Buyer and Company, available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Shareholder agrees (1) to retain all books and
records with respect to Tax matters pertinent to Company relating to any Tax
period beginning before the Closing Date until the expiration of the stature
of limitations (and, to the extent notified by Buyer, any extensions
thereof) of the respective taxable periods (unless such items were
transferred pursuant to this Agreement), and to abide by all record
retention agreements entered into with any Tax authority, and (2) to give
Buyer reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if Buyer so requests, Shareholder
shall allow Buyer to take possession of such books and records.
<PAGE>
13.5 Buyer and Shareholder agree, upon request, to use their reasonable
commercial efforts to obtain any certificate or other document from any
governmental authority or any other person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
13.6 Buyer and Shareholder agree, upon request, to provide the other party
with all information that either party may be required to report pursuant to
Code Section 6043 and all Regulations promulgated thereunder.
13.7 Buyer shall promptly notify Shareholder in writing of the commencement
of any claim, audit, examination, or other proposed change or adjustment by
any tax authority concerning any Tax or other similar claim or assessment
for which Shareholder may be responsible (a "Tax Claim"); provided, however,
that failure to give such notice shall not relieve any party from its
obligation to indemnify with respect to any such Tax Claim except to the
extent of actual prejudice. Shareholder shall have the right to employ
counsel of his choice at his expense and to participate with Buyer and
Company in resolving any dispute of Taxes with respect to tax periods
beginning before the Closing Date through the appropriate administrative
offices and in the courts, and shall have primary responsibility for the
conduct of any such proceedings relating solely to periods ending on or
before the Closing Date.
14. . The following terms used in this Agreement shall have the meanings
indicated below:
"Affiliate" shall mean, as to any person or entity, any person
or entity that controls, is controlled by or is under common control with
such person or entity, as a result of equity ownership, contractual rights
or otherwise.
"Agreement with Shareholder" shall have the meaning given in
Section 10.2.6 of this Agreement.
"Business" shall have the meaning given in the recital to this
Agreement.
"Buyer" shall have the meaning given in the heading of this
Agreement.
"Buyer Contest Notice" shall have the meaning given in Section
11A.3.2 of this Agreement.
"Closing" shall have the meaning given in Section 10.1 of this
Agreement.
"Closing Date" shall have the meaning given in Section 10.1 of
this Agreement.
"Closing Date Net Worth" shall have the meaning given in Section
1.3.1 of this Agreement.
<PAGE>
"Closing Date Payment" shall have the meaning given in Section
1.2.1. of this Agreement.
"Code" shall have the meaning given in Section 2.15.1 of this
Agreement.
"Company" shall have the meaning given in the heading of this
Agreement.
"Company Agreement" shall have the meaning given in Section 2.9.1.
"Contest Notice" shall have the meaning given in Section 11.3.2
of this Agreement.
"Damages" shall have the meaning given in Section 11A.2.3 of this
Agreement.
"Deficiencies" shall have the meaning given in Section 11.2 of
this Agreement.
"Environmental Law" shall have the meaning given in Section
2.6.3 of this Agreement.
"ERISA" shall have the meaning given in Section 2.18.1 of this
Agreement.
"ERISA Affiliate" shall have the meaning given in Section 2.18.1
of this Agreement.
"Escrow" shall have the meaning given in Section 1.2.2 of this
Agreement.
"Escrow Agent" shall have the meaning given in Section 1.2.2 of
this Agreement.
"Escrow Agreement" shall have the meaning given in Section 1.2.2
of this Agreement.
"Final Closing Date Net Worth" shall have the meaning given in
Section 1.3.3 of this Agreement.
"Final Net Worth Adjustment" shall have the meaning given in
Section 1.3.3. of this Agreement.
"GAAP" shall mean generally accepted accounting principles.
"Holdback Amount" shall have the meaning given in Section 1.2.2
of this Agreement.
"Intellectual Property" shall have the meaning given in Section
2.7.1 of this Agreement.
<PAGE>
"IRS" shall have the meaning given in Section 2.18.1 of this
Agreement.
"Knowledge" and "Known" by Shareholder shall mean the actual
knowledge of the Shareholder, and also means that Shareholder undertook due
inquiry of the applicable matters. Except with respect to the immediately
preceding sentence, "actual knowledge" of Shareholder shall mean the actual
knowledge of Shareholder, without such inquiry.
"Lease Consents" shall have the meaning given in Section 8.7 of
this Agreement.
"Leased Properties" shall have the meaning given in Section
2.6.1 of this Agreement.
"Leases" shall have the meaning given in Section 2.6.2 of this
Agreement.
"Marks" shall have the meaning given in Section 2.7.3 of this
Agreement.
"Multiemployer Plan" shall have the meaning given in Section
2.18.1 of this Agreement.
"Net Worth" shall have the meaning given in Section 1.3.1 of
this Agreement.
"Net Worth Adjustment" shall have the meaning given in Section
1.3.1 of this Agreement.
"Net Worth Adjustment Deficiency" shall have the meaning given
in Section 1.2.2 of this Agreement.
"PBGC" shall have the meaning given in Section 2.18.1 of this
Agreement.
"Pension Plan" shall have the meaning given in Section 2.18.1 of
this Agreement.
"Permitted Liens" shall mean (i) statutory landlords',
mechanics', carriers', workmen's, repairmen's, or other like liens arising
or incurred in the ordinary course of business with respect to liabilities
not yet due or delinquent, or being contested in good faith by appropriate
proceedings, (ii) liens for taxes, assessments and other governmental
charges which are not yet due and payable or which may hereafter be paid
without penalty or which are being contested in good faith by appropriate
proceedings (for which adequate reserves have been made in the Warranted
Balance Sheet), (iii) liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance, social security, retirement and other similar legislation for
sums not yet due and payable, and (iv) deposits to secure performance of
leases, statutory obligations, surety and appeal bonds, performance bonds
and other like obligations incurred in the ordinary course of business.
"Plan" shall have the meaning given in Section 2.18.1 of this
Agreement.
<PAGE>
"412 Plan" shall have the meaning given in Section 2.18.1 of
this Agreement.
"Preliminary Closing Date Net Worth" shall have the meaning
given in Section 1.3.2 of this Agreement.
"Preliminary Net Worth Adjustment" shall have the meaning given
in Section 1.3.2 of this Agreement.
"Purchase Price" shall have the meaning given in Section 1.2 of
this Agreement.
"Regulation" shall have the meaning given in Section 2.15.1 of
this Agreement.
"Return" or "Returns" shall have the meaning given in Section
2.15.1 of this Agreement.
"Shareholder" shall have the meaning given in the heading of this
Agreement.
"Shareholder Deficiencies" shall have the meaning given in
Section 11A.2 of this Agreement.
"Stock Rights" shall have the meaning given in Section 3.1 of
this Agreement.
"Tax" and "Taxes" shall have the meaning given in Section 2.15.1
of this Agreement.
"Tax Claim" shall have the meaning given in Section 13.7 of this
Agreement.
"Treasury Regulation" shall have the meaning set forth in
Section 2.15.1 of this Agreement.
"Warranted Balance Sheet" shall have the meaning given in
Section 2.4.1 of this Agreement.
"Withdrawal Liabilities" shall have the meaning given in Section
2.18.1 of this Agreement.
15. .ermination
15.1 This Agreement may be terminated at any time prior to the Closing
Date:
15.1.1 by the written agreement of Buyer and Shareholder;
<PAGE>
15.1.2 by either Shareholder or Buyer by written notice to the other party
if the transactions contemplated hereby shall not have been consummated
pursuant hereto by 5:00 p.m. EST on September 30, 1998, unless such date
shall be extended by the mutual written consent of Shareholder and Buyer,
provided that no party may give such notice if its breach (except a breach
following a breach of this Agreement by the other party hereto) of this
Agreement has precluded the consummation of this Agreement;
15.1.3 by Buyer by written notice to the other party if (i) the
representations and warranties of Shareholder shall not have been true and
correct in all respects (in the case of a representation or warranty
containing a materiality qualification) or in all material respects (in the
case of a representation or warranty without a materiality qualification) as
of the date when made, or (ii) if any of the conditions set forth in Section
8 shall not have been, or if it becomes apparent that any of such conditions
will not be, fulfilled by 5:00 p.m. EST on September 30, 1998, unless such
failure shall be due to the failure of Buyer to perform or comply with any
of the covenants, agreements, or conditions hereof to be performed or
complied with by it prior to the Closing; or
15.1.4 by Shareholder by written notice to the other party if (i) the
representations and warranties of Buyer shall not have been true and correct
in all respects (in the case of a representation or warranty containing a
materiality qualification) or in all material respects (in the case of a
representation or warranty without a materiality qualification) as of the
date when made, or (ii) if any of the conditions set forth in Section 9
shall not have been, or if it becomes apparent that any of such conditions
will not be, fulfilled by 5:00 p.m. EST on September 30, 1998, unless such
failure shall be due to the failure of Shareholder to perform or comply with
any of the covenants, agreements or conditions to be performed or complied
with by them prior to the Closing.
15.2 In the event of the termination of this Agreement pursuant to this
Section 15, this Agreement shall become void, without any liability to any
party in respect hereof or of the transactions contemplated hereby on the
part of any party hereto, or any of its directors, officers, employees,
agents, consultants, representatives, advisers, stockholders or Affiliates,
except as specified in Section 16.14 or in the Confidentiality Agreement and
except for any liability resulting from such party's breach of this
Agreement.
16. .iscellaneous
16.1 Neither the failure nor any delay on the part of any party to exercise
any right under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or further
exercise of the same or of any other right nor shall any waiver of any right
with respect to any occurrence be construed as a waiver of such right with
respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
<PAGE>
16.2 . This Agreement and all questions relating to its validity,
interpretation, performance and enforcement, shall be governed by and
construed in accordance with the laws of the State of Florida
(notwithstanding any conflict-of-law doctrines of any state to the contrary)
and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
16.3 . Any failure of Shareholder or Buyer to comply with any obligation,
covenant, agreement or condition contained herein may be expressly waived in
writing by Buyer in the case of any such failure by Shareholder or by
Shareholder in the case of any such failure by Buyer, but such waiver or
failure to insist upon strict compliance shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
16.4 . Any notice, request, demand or other communication permitted or
required to be given pursuant to this Agreement shall be in writing and
shall be deemed to have been properly given if delivered in person or if
sent either by facsimile transmission, against which a confirmation of
receipt is obtained by return facsimile transmission, by nationally
recognized overnight courier service on the day intended for delivery, or by
certified or registered mail, postage prepaid, three (3) business days after
being so posted, to the following address:
If to Buyer:
Piercing Pagoda, Inc.
3910 Adler Place
Bethlehem, PA 18002
Attention: Chairman of the Board
Telephone No: (610) 691-0437
Facsimile No: (610) 882-8343
with a copy to:
Wolf, Block, Schorr and Solis-Cohen LLP
Twelfth Floor, Packard Building
111 South Fifteenth Street
Philadelphia, Pennsylvania 19102
Attention: Jason M. Shargel, Esquire
Telephone No: (215) 977-2216
Facsimile No: (215) 977-2740
<PAGE>
If to Seller:
Richard P. Russ
2800 Sunset Drive
Sunset Island #1
Miami Beach, FL 33140
Telephone No: (305) 673-1522
Facsimile No: (305) 534-5347
with copies to:
Steel Hector & Davis LLP
200 South Biscayne Boulevard
Suite 8000
Miami, FL 33131-2398
Attention: Thomas R. McGuigan, P.A.
Telephone No: (305) 577-2850
Facsimile No: (305) 577-7001
Any party included above may designate a different address by giving
written notice to the other parties to this Agreement in the manner provided
in this Section.
16.5 . All Exhibits and Schedules attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
16.6 . This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives,
successors and permitted assigns. Shareholder may not assign any of his
rights or obligations hereunder. Buyer may assign any or all of its rights
hereunder to any Affiliate of Buyer; provided, however, that Buyer shall
remain responsible for the performance of all of its obligations under this
Agreement notwithstanding any such assignment.
16.7 . This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the
signatures of both of the parties reflected hereon as the signatories.
16.8 . The provisions of this Agreement are independent of and separable
from each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other or others
of them may be invalid or unenforceable in whole or in part.
<PAGE>
16.9 . In computing the number of days (unless business days is specified)
for purposes of this Agreement, all days shall be counted, including
Saturdays, Sundays and holidays; provided, however, that if the final day of
any time period falls on a Saturday, Sunday or holiday on which federal
banks are or may elect to be closed, then the final day shall be deemed to
be the next day which is not a Saturday, Sunday or such holiday.
16.10 . This Agreement (including the Exhibits and Schedules hereto) and the
Confidentiality Agreement contain the entire understanding among the parties
hereto with respect to the subject matter hereof, and supersedes all prior
and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained.
The express terms hereof control and supersede any course of performance
and/or usage of the trade inconsistent with any of the terms hereof. This
Agreement may not be modified or amended other than by an agreement in
writing.
16.11 . The paragraph headings in this Agreement are for convenience only;
they form no part of this Agreement and shall not affect its interpretation.
16.12 . Except as provided in Sections 4A.3, 11 and 11A, this Agreement
shall inure to the benefit of the parties to this Agreement only and not to
the benefit of any third party, including Shareholder's employees.
16.13 . Without Buyer's written consent, Shareholder, nor any person acting
on his behalf shall issue a press release or otherwise disclose or publicize
the execution of this Agreement, the terms hereof or the consummation of the
transactions contemplated hereby. Buyer shall use its reasonable efforts to
give Shareholder an opportunity to comment on any press release or other
disclosure relating to this Agreement, the terms hereof or the transactions
contemplated hereby.
16.14 . The parties hereto (and not the Company) shall each pay the expenses
incurred by them in connection with the negotiation and performance of this
Agreement and the agreements contemplated hereby; provided, however, that
Company shall pay the expenses of Shareholder (and such payment shall be
reflected in the calculation of the Preliminary Net Worth Adjustment,
Preliminary Closing Date Net Worth, Final Net Worth Adjustment and Final
Closing Date Net Worth). Except in connection with any arbitration
proceeding as to which the arbitrator shall have the authority to award fees
and expenses and other reasonable costs, and except as otherwise provided
herein, the non-prevailing party shall pay the reasonable legal fees and
expenses, and other reasonable costs, of the prevailing party in any
litigation or other proceeding between the parties (or the Company) with
respect to the rights and obligations of the parties hereunder.
16.15 . This Agreement has been jointly prepared by the parties hereto and
the terms hereof shall not be construed in favor of or against any party on
account of its participation in such preparation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PIERCING PAGODA, INC.
By: /s/ John F. Eureyecko
Name: John F.Eureyecko
Title: President
Witness: SHAREHOLDER:
/s/ Joseph I. Emas /s/ Richard P. Russ
Richard P. Russ
<PAGE>
JOINDER OF GINA S. RUSS
The undersigned, intending to be legally bound, agrees to execute the
Agreement with Shareholder and the Joint Property Agreement at Closing.
/s/ Gina S. Russ
Gina S. Russ
<PAGE>
DSB:523662.1
The following list of exhibits and schedules to the Stock
Purchase Agreement has been provided in accordance with Item 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish supplementally a copy of
any omitted exhibit or schedule to the Securities and Exchange Commission
upon request.
EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B - Employment and Non-Competition Agreement
Exhibit C - Release executed by Shareholder, Directors and Officers of
Company
Exhibit D - Certification Pursuant to Foreign Investment Real Property
Tax Act
Exhibit E - Legal Opinion of Counsel for Shareholder
Exhibit F - Joint Property Agreement
Exhibit G - Releases Executed by Buyer, Ears, Inc. and Company
Exhibit H - Legal Opinion of Counsel for Buyer
SCHEDULES
Schedule 2.2 - Officers, Directors, Bank Accounts, etc.
Schedule 2.3 - Subsidiaries and Joint Ventures
Schedule 2.4 - Financial Statements
Schedule 2.5 - Liabilities; Accounts Receivable
Schedule 2.6 - Real Estate
Schedule 2.7.1 - Personal Property
Schedule 2.7.2 - Marks
Schedule 2.8 - Insurance
Schedule 2.9 - Contracts, Leases, Agreements and Other Commitments
Schedule 2.9.3 - Outstanding Written or Oral Proposals, Bids, Offers or
Guaranties
Schedule 2.10 - Labor, Employment Contracts and Employee Benefit Plans
Schedule 2.11 - Litigation
Schedule 2.12 - Conflicting Interests
Schedule 2.13 - Compliance with Law and Regulations
Schedule 2.14 - Agreement Not in Breach of Other Instruments Affecting
Company; Governmental Consent
Schedule 2.15 - Tax Matters
Schedule 2.16 - Actions Since January 1, 1998
Schedule 2.18.2 - Employee Benefit Plans
Schedule 2.18.3 - Employment, Consultancy or Similar Agreements
Schedule 2.18.11 - Plan Amendments
Schedule 4.2 - Agreement Not in Breach of Other Instruments Affecting Buyer
Schedule 8.5 - Certain Employee Indebtedness
Schedule 9.5 - Repayment of Certain Indebtedness
- --------
* In accordance with Item 601(b)(2) of Regulation S-K, this exhibit
contains a list of the exhibits and schedules to the Stock Purchase
Agreement, but omits copies of such exhibits and schedules. The
Registrant agrees to furnish supplementally a copy of any omitted
exhibit or schedule to the Securities and Exchange Commission upon
request.
* In accordance with Item 601(b)(2) of Regulation S-K, this exhibit
contains a list of the exhibits and schedules to the Stock Purchase
Agreement, but omits copies of such exhibits and schedules. The
Registrant agrees to furnish supplementally a copy of any omitted
exhibit or schedule to the Securities and Exchange Commission upon
request.
